If you want to learn the secret to successful business repeat this phrase: Cash is King. Cash is one of the few things your business really can’t survive without. Take some time today to read up on some easy measures for protecting your business cash flow.

Business cash flow

Quick takeaways if you’re in a hurry

  • An important first step in protecting your cash position is identifying what it is. Build a cash flow statement and prioritise keeping it up to date.
  • Create a cash buffer so that if anything disrupts your income your business can keep operating
  • Don’t be tempted to spend money at start up that you hadn’t planned to spend. Manage your budget tightly and prioritise spend that will drive revenue.

Read on: A guide to business cash flow health

[estimated reading time: 5 minutes]

If you’re running a business then it’s important to remember at all times that Cash is King. Whether you’ve heard the phrase before or not, you should repeat it to yourself at least five times a day. Every business needs to manage their cash carefully to ensure their survival. Here are five tips for taking control of your cash flow to ensure the success of your business.

1. Create a cash flow budget

If you’re going to manage your cash position as a business then you need to know what it is. Start by building a business cash flow statement and work it into a forecast that will allow you to look six to 12 months into the future.

Your cash flow forecast should incorporate all your business costs, both fixed and variable, as well as your revenue and any other expected income. Looking into the future should allow you to anticipate any issues you may have where income does not meet outgoings and you’re going to be short of cash.

If you see a shortfall in your cash flow forecast then start to plan the remedy today. There are a range of finance options available through your bank or alternative finance providers. Planning ahead means you should have plenty of time to find the best solution to meet your business’s needs.

2. Manage a cash reserve

If your business is operating with a cash balance of zero you’re going to find it very hard to function. Business cash flow challenges are rarely within your control so without a buffer in place you could easily find yourself facing a cash emergency.

To protect your cash position it’s advisable to maintain a balance that’s equivalent to at least two months of operating expenses. That means that you’ve got reserves in place to protect yourself just in case you experience a sudden drop in revenue or a customer is late in making a payment.

In case of a cash flow emergency you may also find it advantageous to set up a finance facility with Fifo Capital. This basically allows you to choose your preferred type of finance and get pre-approved so that you can switch it on quickly if you need it. There’s no cost to set it up, it just works like a safety barrier to stop your business crashing in a cash flow crisis.

3. Be realistic with your sales volume estimates

There’s nothing wrong with being optimistic in business – until it comes to building forecasts. When you build your cash flow forecast and plan the future of your business it’s important to be realistic with your revenue expectations.

Realism will ensure that you take action now if it looks like your sales are not going to support you achieving a breakeven position. You can also take a close look at your costs and understand if there’s action that can be taken to improve your overall finances.

Working with a mentor from within your own industry, or a financial advisor who has experience dealing with similar businesses, will help you to build a context around your predictions. Forecasting revenue is notoriously difficult for businesses in their first three years so canvassing feedback will help you ensure your expectations are objective.

4. Stay focused on collecting revenue from your customers

Your customers have the power to make or break your business with their ability or inability to pay their bills. Because of this it’s incredibly important to micromanage your invoices and set up a robust structure around customer payment. This will ensure that both you and they know where you stand.

Credit checking up front will help to minimise the risk of customer non-payment. Follow this up with clear payment terms agreed in writing. Consider implementing early payment incentives and late payment penalties – both can help to reinforce to your customers your expectations around when payments will be made.

The most important tool for managing customer payment is regular communication. Being constantly in touch with customers keeps your business front of mind and allows you to keep them across imminent payment deadlines before they happen, reducing the risk that they are missed and you are left without the cash you need.

Invoice management is a time consuming process so it’s certainly worthwhile investigating automation where possible. Customers will quickly pick up on any failure to issue invoices on time or chase late payment, and will often assume this means they can miss deadlines themselves. Close management of your deadlines is a key part of reminding customers to meet the time-scales you set.

5. Keep a tight hold on your purse strings, especially through start up

Every dollar your business spends reduces your cash reserves and moves you closer to a potential cash flow crisis. The best way to protect your cash is to create a budget for the spend you know you need to make, and then stick to it.

It’s easy to begin your business with coffers filled with cash and find yourself tempted by products and services that promise to make running your business even easier. Take the time to carry out a cost-benefit analysis on any opportunities: then you can be sure that any decision to spend is backed by the knowledge that it will deliver a positive revenue impact on your business.

Cash is King, and as a business owner it’s important to protect your cash reserves as they are essential to your success. Your business cannot function without cash, so it’s important to put it at the centre of everything you do today and chart a cash positive course for a successful future.

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