Cash flow – the lifeblood of any business
There are many good reasons to go into business for yourself, and one of the main – and most obvious – reasons is to make money. And the best way to ensure your business will be profitable is to understand what cash flow is and how best to manage it, so that you can increase it.
What you’re looking to achieve is more money coming in than going out. Pretty simple, really. And there are several ways you can do this, meaning that you’ll then have the means to grow your business and sustain your competitive edge.
Managing your cash flow
From shortening your cash cycles to managing debt, you’re looking to generate more cash in your business. Some of the ways to do this are:
Using good accounting tools – what you should have is a system that effectively manages your payroll. Meridian has partnered with Payworks, a leading Canadian payroll provider, whose solution is flexible and easy to use. It means that you can spend more time focusing on increasing your cash flow and less worrying about the intricacies of paying your employees. Payroll services often reduces overall expenses too.
Shortening your cash cycles – what you don’t want are lengthy periods when your business goes without cash. Try to get paid immediately using pay-on-the-spot solutions, or at least encourage early payment. Take the time to run credit checks on your customers and make sure you’re extending credit to reliable customers only. Our Cash Management section has a number of solutions to help you.
Manage receivables – as well as always performing credit checks, always have a contract with your customers and be consistent with your processes. Make sure you’ve got good systems in place, such as a debt management calendar, and always use credit limits that are based on customer assessments.
Managing payables – Make sure you leverage terms of your payables to help stretch your cash flow. Also, payment using a credit card can help given there are typically grace days on a credit card (industry average is 21 days). So this essentially allows you to pay (and potentially receive) for something today, but your cash doesn’t go out until 21 days later, for example.
Improving your cash flow
Once you’ve got the management of your cash flow firmly in hand, it’s time to start improving it. You can do this by:
- Reassessing your costs – don’t assume anything. Regularly compare your budget with actual cost figures, because they can creep up slowly over time.
- Reassessing your pricing – don’t be afraid to raise your prices, especially if you’ve got some market research on hand that suggests what price tolerance your target market has. Competing on price is a well-worn strategy, but it only works if you can bulk-buy from suppliers. Competing on quality instead justifies charging a higher price.
- Becoming more efficient – technology’s great, especially with all the online options. And do you really need to be spending so much time travelling? A Skype call with distance customers can be just as effective as an actual visit and is a fraction of the cost.
- Setting goals – if you can’t measure your progress, you’re less likely to succeed, so carry out a costs analysis and use break even calculations so you know what needs to be achieved, and by when.
Advice and resources
Run credit checks – Equifax and TransUnion are the most popular choices for doing this.
Check out some of the ways we can help you to get your banking done online.
Talk to us about our Merchant Services.