Cash is king - how to crown your business - Business Works
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Cash is king - how to crown your business

Martin Crook, Partner, Adams Moore Every business needs to have a positive cash flow. Lack of cash is the main cause of business failure, not, as is commonly believed, lack of profits. However generating cash flow is possible if you follow a few simple, but very effective guidelines:

Manage your customers

  1. Examine your customers: Only trade with customers who are likely to pay you. Check out your customers’ financial history, including their credit rating. Also, continue to monitor their credit-worthiness throughout your trading relationship. Your accountant may be able to offer a monitoring or tracking service for this.
  2. Understand your customers: Exactly who and where should you be sending your invoices to? Do they have an accounts payable department? Should you quote a purchase order on your invoices? What format (post or email) should you send your invoices in? Knowing all of this can greatly help the chances of your payment being processed efficiently.
  3. Negotiate: Ensure you have agreed on your terms of payment. Most companies will try and get you on to 60 or 90 day payment terms. It is advisable to avoid this, as it can be a real issue for any small business.
  4. Set up good credit control procedures: Send invoices out promptly. Establish credit limits for each customer based on (1) above and stick to it. Establish the invoice has reached the customer, then chase regularly and politely both before and after it is due.

Manage your business

  1. Prepare a budget: This will establish your aims for the year. Be realistic and break the budget down into months, so you can plan your peaks and troughs, and therefore identify times when you are likely to struggle for cash.
  2. Produce regular management accounts: Compare actual to budget every month, so that you understand the direction your business is going in.
  3. Manage your stock: By producing a budget you can manage your stock. High stock levels have no profit and loss effect. However they are a killer for cash flow. Only buy to your budget and ensure stock levels are kept to a minimum, without running out of key sellers.
  4. Producing accurate monthly information: this will help you keep any lenders on side, therefore you have a better chance than your competitors of getting any extra finance needed.

Manage your suppliers

  1. Think Lean and Mean: Scrutinise every cost that you have on your profit and loss account. Do you get value for money and is every item necessary for the operation of your business?
  2. Negotiate: Ensure you have agreed on the suppliers payment terms. Try and negotiate 60 or 90 day payment terms. Then get it in writing.
  3. Check all deliveries: Ensure all deliveries are correct, and not short. Then inform your supplier as quick as possible and obtain the credit note.

Martin Crook is a partner at Adams Moore Accountants and Business Advisers

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