Tackling your cash flow is a sure-fire way to help your business succeed. Cash flow is essential to your business’ survival and is often far more important than earnings.
If your business is a car, revenue is the flashy exterior, cash flow is the engine. Cash helps your company move from A to B on your terms. Not enough cash? Well, you’ll be pushing that car up the hill before you know it. Having a healthy cash flow keeps you moving forward and lets you absorb unexpected costs should they arise.
However! Maintaining a healthy cash flow can be a difficult task. Even if you have a strong revenue line, it can be easy to neglect your cash flow. Revenue isn’t the whole story. You must keep on top of your cash flow to ensure the money that you have earned is in the bank and accounted for and is enough to not only cover your outgoings, but to give you a profit.
The following four steps will help you avoid hitting the emergency buttons of finding more cash through owner financing, securing loans, or applying for credit.
Pull apart your accounts receivable
Ever had an argument with someone, you want to make up, but you leave it a couple of days? Then leave it a week? A week becomes a month... A month becomes a year... Suddenly, you’ve left it too long to bring up anymore. But you still want to resolve what happened, right?
Well, that’s a bit like old outstanding receivables. The longer you leave it, the harder it is to chase. Many businesses struggle collecting payments. One study from last year found that about 15% of global B2B receivable payments are late.
You want to keep those 30-day receivables to 30 days. The good news is that there are plenty of tech solutions to keep on top of your invoices. Alongside setting up automatic invoice reminders and apps designed to automate chasing payments such as with Chaser, Satago or DebtorDaddy, you should take a forensic deep dive into the patterns of your late payments.
By syncing your Quickbooks Online, Xero, or Sage with Futrli, quickly find out who the usual suspects are for late payments. Once you know who is likely to pay late, you can either address the issue with the client or account for these late payments in your cash flow plans.
Take a cash flow perspective
Take a true bird’s eye view of your finances to understand both your operational performance and your cash flow position for today and up to 3 years in the future.
Understanding when cash is coming in and going out of your business is a great way to stay on top. However, this means so much more than just looking at today’s bank balance. Use prediction software to peek into your projected future cash flow. Understand where your cash pinch points are and give yourself time to plan how to navigate them.
At this point, it is worth noting that there is a difference between cash flow forecasting software and prediction technology. Many cash flow software providers only take into consideration the due dates of your invoices and bills. They don’t work out when these bills are most likely to be paid. Perhaps you’re diligent with your bills and always pay them a week early, maybe you have a regular client who always pays you two days late. It is critical that these trends are accounted for when you are taking that bird’s eye look at your business or it will give you an inaccurate view.
What is also critical is that you can see the whole business, some cash flow only forecasting software do not include your predicted profit and loss or balance sheet activity with their forecasts and so are only showing you a small piece of the full picture.
Futrli accounts for these trends in your financial data and includes every area of your business. Every customer and supplier has their average payment days calculated on top of same-day cash transactions, so cash flow is accurately predicted, not just based on your credit terms. The P&L and balance sheet predictions are forecast with the same transactional level scrutiny to deliver a true picture of where you are heading.
Review your pricing
Pricing is a tough nut to crack. SMEs are notorious for under-pricing. Whether it’s out of a desire to break into the market, or undervaluing their skill set and experience, small businesses can struggle to get their pricing at that sweet spot.
Many find their way through trial and error, the Goldilocks method if you will. But there are better methods to finding that perfect price.
“This price is too high. This price is too low. This price is just right.” - Goldilocks, (probably.)
Having all your financial information in one place in the Futrli dashboard lets you know exactly how much money you need to take as a business, to make the profits you want to make.
This sounds so logical, but many businesses out there don’t even know how much they need to sell to break even. Create your own hypothetical scenarios with manual predictions to see how your takings will change with adjustments to your pricing.
Increasing the prices of products and services that are cash sales could greatly improve your liquidity. This may prove critical with prices rising steeply.
Reduce Costs & Increase Sales
Reducing costs may seem obvious but it is worth going back to basics. It is highly likely that your business wasn’t what it was six months ago.
Take a deep dive into your costs and opportunities. Spend some time modelling increased bills and understand their impact if things stay the same.
In challenging times and particularly when your costs increase, increasing sales can often be the strategy but it can come with hidden negative impacts. More sales heads increase your salary expenses. New projects can increase upfront costs.
Marketing is expensive and difficult to get right. And of course, you need to be realistic and consider whether your increased sales projections are achievable. Again, spend some time simulating different business outcomes and be confident in every decision you make.
By using Futrli, you can take a holistic view of your business that incorporates your cash flow, profit & loss, and balance sheet. Make the challenging decisions facing your business from an informed perspective. Through three-year rolling predictions take confidence in the choices you make and see when you can afford expansion and when to tighten the belt.