Strategies for Efficient Cash Flow Management

If any single term can define what it is that makes or breaks a business, it must surely be cash flow. Even if you have the best staff, customers, suppliers and ideas, with a bad cash flow situation your business is likely to go bankrupt rather quickly. For our purposes, we will work with cash flow in its simplest form; the principle that a company's income should be the same as, if not higher than, its expenditures. Sounds simple. So why do so many businesses get it wrong?

Keeping your cash flow in good order

Whether chronic or temporary, cash flow problems could mark the end of your business. If you can't pay off a debt in the extended time allowed but you know you're going to receive £20,000 the week after, this still might not be enough. Let's go over a few general strategies to keeping your cash flow in order:

 Hire a good accountant - Whether you have a professional person working on your books or just your Auntie Maggie preparing the figures to pass on to an auditor, make sure they're good at their job. If your business has more than a couple of employees, the benefits of hiring a good accountant should more than outweigh the cost. He/she will also be more qualified to give you advice on tax loopholes and ways to avoid future cash flow problems.

 Be diplomatic and don't lie - If you can be diplomatic with your customers and those who you owe money to, you are half way there to solving your cash flow problems. Be honest with people you owe money to. If you can't pay back an installment on a loan within the time required, negotiate a deal and show them that you're definitely going to have money available to pay the installment at a later date. Most creditors will support you if you're honest with them. After all, it's not in their interests for you to go bankrupt and be unable to pay off the debt.

 Cutting down on expenses - If you can cut down your expenditures just by a little each month, you can save up money to prevent future cash flow problems. Even if you are flush with cash in one month it doesn't mean you will be the next. Try not to work on the brink of insolvency all the time.

 Keeping abreast with your financial situation - Keeping the books balanced isn't as easy as it initially seems. Even if you have a great accountant, it's important that you yourself keep abreast with your financial situation. Even more important is that you rationally deal with bad cash flow situations and invest your money wisely when your cash flow situation is good.

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