How monitoring cashflow can actually improve your business

30 July 2019

Cash Flow:

You don’t need us to tell you that the survival rates for start-ups do not make pretty reading. One of the main reasons why so many businesses fail is because of cashflow problems. In fact, it is estimated that up to 90 per cent of business failures have been caused because of cashflow problems. This is according to data that was released by the Office of National Data. Moreover, BACS has also released some interesting research regarding cashflow, concluding that around half of all businesses in the UK are paid late. This can be a big problem for companies, meaning they do not have enough money to pay suppliers and take their business forward. This is why it is important to make an effort to lower cashflow problems as much as possible. This begins with actually monitoring your cashflow to begin with. With that being said, read on to discover everything you need to know about the different ways that you can enhance cashflow at your business.

Cash flow illustration with laptop, money and graph chart

How do cashflow problems start?

Before we can take a look at the different ways that you can deal with cashflow problems, it is first important to understand how these problems can arise, to begin with. Once you understand the origin of cashflow issues, you will be better placed to ensure that they do not manifest at your company. So, some of the main causes for cashflow issues are as follows…

  • Seasonal demand
  • Unexpected changes
  • Overtrading
  • Allowing customers too much credit
  • Too much stock
  • Over investment in capacity
  • Low profits or losses
  • Clients that do not pay on-time

These are some of the most common reasons for cashflow problems. By understanding these and putting provisions in place to ensure they do not happen at your business, you can reduce the chances of cashflow problems occurring. However, you cannot guarantee that you won’t fall victim to a customer that does not pay on time. So, with that in mind, we are now going to take a look at some of the different ways you can deal with cashflow problems.

If you can’t measure it, you can’t manage it…

If you are going to ensure that cashflow does not become a problem at your business, you are going to need to monitor it effectively. A lot of business owners do not understand cashflow or they simply ignore it. However, if you do this, you’re simply asking for trouble. You may think that everything is fine one day because you have got plenty of cash in the bank. However, once all of your bills come out, you may find yourself with no funds available to run your business properly. All of this could have been avoided if you tracked and monitored your cashflow effectively to begin with.

By monitoring your cashflow, you will be able to see what money you have coming in and when, as well as knowing exactly when different payments are going to be taken from your account or when you are going to need to make further orders in terms of stock. This will help you to get a true understanding of how much money you are going to have available on different dates and at different points. This enables you to manage your cashflow so you can make sure you always have enough funds available. If there are going to be times whereby cash is going to be tight, you will be able to plan for this and look for cash injections so you can make sure that these tight periods do not have a negative impact on the operations of your business.

What is the importance of measuring cash flow? Two businessmen looking at a graph.

Some tips for better cashflow management

Now that you have a better understanding regarding why it is so important for you to monitor your company’s cashflow, we are going to take a look at some of the different things you can do in order to achieve this as effectively as possible.

  • Determine your company’s breakeven point – The first thing you need to know and understand is the point whereby your company will become profitable. This will not have an impact on your cash flow. However, it does give you an early goal to strive to. This provides you with a ready-made objective in terms of projecting your future cash flow. Negative profits and negative cash flow make for a dreadful combination that no business wants.
  • Find out if you’re entitled to R&D tax relief – A lot of business owners are missing out on R&D tax relief, which could see you entitled to free money from the government for your research and development efforts.
  • Make the most of technology – There is no denying that technology has advanced at a rapid pace over the past couple of years, and this is great news for businesses because it makes it a lot easier for you to track your cashflow and to make future projections. This is something you should definitely make the most of.
  • Boost sales with creative incentives – One of the most important elements when it comes to booting your cashflow is looking for different ways that you can ensure an injection of cash into your business. There are a number of different ways that you can do this yet the most important option is to look for ways to increase the number of sales you make. There are a number of creative incentives you can use to do this, for example, taking employees on a publicity tour, offering referral incentives, hosting a customer appreciation event, or sponsoring a concert.
  • Encourage customers to pay faster – Finally, it is important to encourage customers to pay your invoices as soon as possible. From having clear terms and conditions to sending your invoices out at the earliest opportunity; there are a number of different ways you can do this.

There is a lot that needs to be considered when it comes to your company’s cashflow. However, there is no denying that getting on top of this is one of the most important things you need to do if your business is to survive and thrive. Using the tips that have been provided in this blog post, you should notice a considerable difference when it comes to cashflow management and ensuring that your business runs as smoothly as possible.

One amazing way to increase cashflow is get money back from HMRC! Click Here to see if you qualify for Research and Development Tax Relief

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