Maintaining a healthy cashflow sometimes feels like a big headache, especially with the ongoing cost of living crisis hiking your costs.
Even profitable businesses can fall down if they don’t know how to effectively manage their finances and adapt to challenges.
So, to help you stay afloat despite the turning tides, our experts have outlined their top tips:
Take care of your balance sheet
Your balance sheet will be able to tell you all you need to know about your business’s finances, beyond your current profits and losses.
By having the ‘net worth’ of your business readily available, your balance sheet can quickly give a good indicator of its current performance whilst alerting you of any potential concerns about the cash you have available.
This can also inform you of how strong your business’s finances are, and give an insight into how resilient it will be to economic shocks.
Shorten your Cash Conversion Cycle
Depending on your current position, you may be worried about how your business will either improve or maintain its current cashflow when faced with the upcoming recession.
To keep on top of this, consider how long your Cash Conversion Cycle is.
This will tell how long it takes for cash to go from your customers’ pockets to your accounts.
In essence, it covers the time scale of buying stock from your supplier, paying the supplier for that stock, to then selling to your customers, and receiving the payment from them.
Of course, your aim should be to keep this cycle as short as possible, as this will free up the cash to use for any extra support you may need.
If there is a long wait between selling products to your customers and receiving the payment, consider altering your payment systems.
Introducing more regular communication with debtors and ensuring there is a clear deadline for payments can deter late payments.
Another option is to introduce fines for late payments, but this could jeopardise your client relationships.
There may also be scope to revisit your payment plans with suppliers and decrease the length of time between you paying them and receiving payment from customers. Negotiating these terms will make sure both parties come to a fair agreement.
For advice on improving your business’s cashflow, contact our team today.
