Cash Flow Commandments: Unconventional Wisdom for Managing Business Finances

by | Jun 13, 2023 | Business Advice, Finance

Key Takeaways:

Managing cash flow is crucial for the success of any business. By doing a cash flow forecast, speeding up payments from customers, and carefully managing expenses, businesses can ensure their financial stability.

The tips shared by Jan Barned on how to improve cash flow for businesses include: preparing a cash flow forecast for the year ahead to spot potential issues early, invoicing promptly upon job completion, reviewing payment terms and offering multiple payment options, managing expenses by comparing bills and negotiating better rates, and regularly reviewing expenses to identify areas to cut back on.

The 10 Commandments of Cash Flow Management provide a framework for effective cash flow management. Regularly updating cash flow forecasts, implementing clear credit control policies, regularly benchmarking suppliers, and knowing customers to protect cash flow are just a few of the tips for success. It is also important to consider alternative financing options such as invoice financing or factoring.

The COVID-19 pandemic has caused many businesses to struggle and close down due to cash flow issues. To be more flexible in an uncertain environment, entrepreneurs should proactively manage their company’s cash flow.

Various negative events have significantly affected the business environment in the past three years. Entrepreneurs should be cautious of their cost structure, supply chains, and loan financing rate to proactively manage their company’s cash flow.

Introduction to cash flow management for businesses

Introduction to cash flow management for businesses

Photo Credits: Www.Bizzloans.Co.Uk by John Nelson

Cash flow management is essential for any business. It’s the key to financial stability and growth. To understand it, you need to know money’s inflow and outflow, like income, expenses, debts, and investments. Tracking these will help businesses make smart decisions and avoid cash shortages.

Monitoring cash flow, even for profitable businesses, is important. Unexpected costs or mismatched timing can cause cash flow issues. Good cash flow management can help prepare for these issues, while also optimizing resources.

A software company is a great example of successful cash flow management. They relied on one client and faced cash flow problems. But, by looking at their data and diversifying their income, they avoided bankruptcy and became stronger than before.

Proactive cash flow management is the way to go. It helps businesses navigate tricky times and become more resilient. Cash flow management is about being aware, disciplined, and creative with finances in order to succeed in the long run.

Cash Flow Commandments: Unconventional Wisdom for Managing Business Finances

Cash Flow Commandments: Unconventional Wisdom for Managing Business Finances

Photo Credits: Www.Bizzloans.Co.Uk by Willie Sanchez

In business, managing finances is key to success. However, many companies overlook cash flow management, which can lead to major problems. In this section, we will explore some unconventional tips for managing business finances, with a focus on cash flow. We will provide key insights on how to stay ahead of the curve, from cash flow forecasting to managing expenses, to ensure your business remains financially stable.

Tip 1: Do a cash flow forecast

Creating a cash flow forecast is a must for businesses to manage their cash flow well. By estimating future money coming in and going out, businesses can see what their finances will look like in the near future. This data is essential for making decisions on investments, costs, and financing options.

Here’s a 4-step guide to making a cash flow forecast:

  1. Tip 1: Use Excel or accounting software to create the forecast.
  2. Tip 2: List all cash coming in, like sales or loans.
  3. Tip 3: Add all money going out, like rent, salaries, utilities, and loan payments.
  4. Tip 4: Follow up and compare actual cash position with the projection.

It’s important to understand that a forecast isn’t just an estimation. It needs to be reviewed often to get an accurate look at the business’s financial health. Businesses should check their forecasts monthly or quarterly to stay up-to-date with any changes in the environment.

Tracking cash flow helps businesses identify potential problems early, so they can take action before supplies run out or creditors go unpaid.

Tip 2: Speed up payments from customers

Businesses must devise strategies to hasten customer payments. Tip 2 recommends:

  1. Reviewing payment terms & offering various payment options.

Accepting credit cards & discounts for early payment can motivate customers to pay faster. Asking for deposits on special orders & progress payments throughout projects can ensure funds arrive in stages. Sending reminders & chasing late payers is essential for prompt payments. Offering payment plans to customers who may be financially challenged is also wise. Incentives & rewards for early payment, like discounts or loyalty points, can encourage quick payment. Adopting these methods & following Tip 2 can lead to better cash flow with less stress. Regularly reviewing expenses & negotiating better rates can help maintain financial stability. Monitoring payments receivable & weekly reports on accounts can improve financial visibility. Trimming expenses & finding cost-effective leasing options can strengthen the bottom line.

Tip 3: Manage expenses

Managing expenses is key for business financial stability. It is important to know regular outgoings, such as utilities and phone bills. Comparing bills from different suppliers assist in finding cost-saving opportunities. This could mean negotiating better rates or changing providers, which can free up cash. Another choice is leasing equipment instead of buying, avoiding tying up cash.

Recording and reviewing expenses helps find areas where costs can be reduced. Keeping accurate records of all expense-related transactions is essential for effective expense management. Policies and guidelines should be made to guide expense management.

By tracking the amount spent on each item, unnecessary costs can be eliminated. This minimizes expenditures and maximizes profits. Cash flow management in business is vital, and should be followed closely. Tip 3 for managing expenses is to review and cut back costs often.

The 10 Commandments of Cash Flow Management

The 10 Commandments of Cash Flow Management

Photo Credits: Www.Bizzloans.Co.Uk by Jose Wilson

Cash flow management is a crucial aspect of managing business finances that requires discipline and sound judgment. In this section, we will explore ten essential principles of cash flow management, each addressing a specific aspect of the financial management process. From revising cash flow forecasts to monitoring inventory levels, we will cover everything you need to know about keeping your business’s cash flow in check.

Regularly updating cash flow forecasts

Managing cash flow is key for any business’s success. Keeping cash flow forecasts updated is vital. By predicting future money coming in and going out, targets can be made and smart spending decisions taken. Furthermore, cash shortage risks can be minimized.

To get a realistic cash flow forecast for the year ahead, businesses should use accounting software or Excel spreadsheets. Making this forecast is just the beginning. It must be monitored against actual figures regularly. This will help spot any differences quickly and act on it fast, if needed.

Updating cash flow projections often means businesses can react swiftly to any market changes, supply chain hiccups, or inventory management issues. They will gain a better understanding of how they are doing with their goals.

Not updating and maintaining a precise cash flow forecast can be disastrous, like overdrafts or bankruptcy. Small businesses must prioritize this before anything else.

Unclear credit policies can stall cash flow. To prevent this, clear and concise credit policies must be implemented right away.

Implementing clear credit control policies

Businesses must have clear credit control policies to manage cash flow effectively. This includes creating credit terms, payment schedules, and regularly tracking customer payments. Credit checks and analyzing credit histories of new customers may help to spot potential risks and stop payment delays.

It’s important to communicate with customers to ensure they understand payment obligations. Regular statements and reminders can prevent missed payments, and automated invoicing software can be useful. Businesses should also have a contingency plan in place for unexpected events and build relationships with financial institutions.

Lastly, businesses should have a formal procedure for debt collection. This should make clear the steps to take for managing late payments and taking legal action when needed.

By following these strategies, businesses can maintain financial stability and manage their cash flow.

Regularly benchmarking suppliers

Benchmarking suppliers regularly is a must for any biz looking to manage their cash flow well. Comparing suppliers’ prices and services to industry standards, aka benchmarking, can help reduce costs, increase profits, and better cash flow management.

Benchmarking also helps firms spot overheads like phone or utilities that cost too much, negotiate better rates with current suppliers, and make sure they are paying market rates for goods or services. It lets businesses choose the best suppliers for their needs, based on price and quality, keeping costs stable.

Benchmarking lets companies monitor how well they use their financial resources. This impacts cash flow management, so regular benchmarking is essential for keeping costs lean.

Moreover, benchmarking is key to effective cash flow management strategies for any business wanting streamlined ops. It helps monitor risks involved with some vendors, and differences between short-term and long-term effects. With this info, companies’ negotiators can make informed decisions when creating contracts, getting the best transparency when working with creditors or investors.

In short, protecting cash flow by knowing suppliers is essential for a biz’s financial health. Regular benchmarking is a must for achieving this.

Knowing customer to protect cash flow

It’s important to know customers to safeguard a business’s cash flow. This means understanding their payment habits, creditworthiness and financial well-being. This info helps businesses wisely decide to provide credit or payment terms. It safeguards cash flow in the long run.

Analyzing customer data and trends reveals who’s likely to pay on time and who may struggle. Businesses can use this knowledge to allocate credit strategically and make better use of resources.

Relationships with customers are also key to cash flow protection. Open communication and addressing any issues quickly can maintain strong relationships and reduce the risk of payment delays or disputes.

Having a “knowing customer to protect cash flow” approach is vital to successful cash flow management. Staying informed and taking steps to reduce credit risks can protect a business’s bottom line and ensure future success.

Invoicing quickly and accurately

Invoicing quickly and accurately is crucial for sound business finances. Follow this 6-step guide to keep cash flow steady and healthy:

  1. Review work time frames.
  2. Send invoice when done.
  3. Offer multiple payment options.
  4. Request upfront deposit for big orders or projects.
  5. Set up progress payments.
  6. Send reminders for late payments.

Be sure invoices are accurate with correct amounts and details. Good management practices should be in place for all financial operations. A web design firm lost clients due to inaccurate billing. They improved their invoicing system to regain trust and enjoy regular cash inflows.

Save money by keeping an eye on expenses and trimming the business budget. Improve invoicing processes to keep cash flow steady and healthy.

Keeping track of expenses and cutting unnecessary costs

Managing cash flow efficiently requires tracking expenses and cutting costs. Review bills for regular overheads like phone or utilities. Negotiate better rates with suppliers or switch providers if possible. Leasing equipment instead of buying can free up cash.

Analyze expenses regularly to identify areas for cost reduction. This gives a clear view on available funds, avoiding overspending and retaining healthy cash flow.

Be ready for unexpected events that may affect the business’s financial standing. Keep track of past trends and experiences to better anticipate effects. Negotiate payment terms to keep the cash flowing smoothly.

In summary, manage cash flow efficiently by tracking expenses, cutting costs, leasing equipment, and negotiating payment terms wisely.

Negotiating payment terms with suppliers and customers

Negotiate payment terms with suppliers and customers to effectively manage cash flow. Offer discounts for early payments to free up cash. Make sure to review payment terms regularly.

Communicate openly to negotiate mutually beneficial agreements. Review payment terms regularly to stay competitive and maintain relationships.

Suggestions for negotiating payment terms:

  • Offer early payments for discounts
  • Set up recurring payments or extend credit card acceptance
  • Evaluate the costs and benefits before implementing changes.

Explore alternative financing options for steady cash flow and business success.

Considering alternative financing options

Managing cash flow means exploring alternative financing options. This is so companies have the funds to keep operations going. Popular alternatives include debt financing through loans or credit lines from lending institutions. Short-term and long-term bank loans exist, as do invoice factoring and asking customers for a retainer. Alternatives also include selling off assets or using equity financing by selling stakes in the company. Government programs and crowdfunding platforms may provide capital too.

It’s vital to evaluate each option carefully to understand its impact on future profitability. Debt creates an obligation to make payments with interest until the loan is repaid in full. Equity financing dilutes ownership and may require business owners to cede control. Creative solutions like crowdfunding campaigns and online lending platforms can supplement traditional financing. The approval time frames are likely faster than banks and the terms on loans can be competitive.

Finally, effective inventory management is key to maintaining cash flow and stability during tough times.

Monitoring inventory levels to avoid overstocking

Maintaining healthy cash flow is key for success in business. Overstocking should be avoided – a good way to track stock levels is to use an inventory management system. It keeps track of stock and sales records, helping to anticipate future needs. Knowing lead times from suppliers is also useful for efficient inventory management.

Review and adjust inventory levels regularly to keep up with sales trends and demands. Put measures in place to avoid waste and spoilage. Proper storage facilities and temperature controls can stop costs from expired goods. Good stock management helps with cash flow and allocating resources to growth opportunities.

Especially in uncertain times, it’s key to be aware of inventory levels. During the COVID-19 pandemic, orders did not match expectations, leaving retailers with too much stock. Monitor your stock to avoid overstocking. Have plans for unexpected events and prepare for the worst – all this contributes to effective cash flow management.

Having a contingency plan in place for unexpected events

Having a plan for the unexpected is a must for businesses. They can do this by regularly updating cash flow forecasts and adjusting them depending on different scenarios. This way, they can prepare for any event that might affect their cash flow.

Additionally, businesses should regularly review their credit control policies. This proactive approach helps identify any risks, which allows businesses to protect their cash flow.

Benchmarking suppliers and researching customers is an additional strategy businesses can use. It helps them understand potential risks and protect their cash flow from sudden events.

To strengthen their ability to manage the unexpected, businesses should also implement strategies for managing expenses and negotiating payment terms with suppliers and customers. Having alternative financing options such as lines of credit or grants can give businesses quick access to resources during times of uncertainty. Adopting these measures can help businesses stay financially stable and secure during unexpected events.

The Impact of Negative Events on Cash Flow Management

The Impact of Negative Events on Cash Flow Management

Photo Credits: Www.Bizzloans.Co.Uk by Richard Brown

Negative events may significantly impact cash flow management for businesses. These could include unexpected expenses, slow customer payment, natural disasters, or economic downturns, leading to cash flow problems.

To manage cash flow during these events, business owners should analyze each step and plan accordingly. Monitoring their cash flow and taking steps to minimize issues, such as cutting costs and renegotiating contracts, is essential.

Having a contingency plan in place can help to reduce the impact of negative events on cash flow management. This plan should provide clear guidance on how to handle finances during emergencies.

Also, businesses should focus on building strong relationships with customers, suppliers, and lenders. Doing this can reduce payment delays and secure additional financing when needed.

In summary, negative events can be daunting for businesses. But, careful planning and proactive measures can help them overcome these challenges and remain financially stable. By having a contingency plan and building strong relationships, businesses can minimize the impact of such events and emerge stronger.

 

Five Facts About Cash Flow Management: Unconventional Wisdom for Managing Business Finances:

  • ✅ Good cash flow management is crucial for business success and involves regularly forecasting and tracking cash flow, managing expenses, and speeding up payments from customers. (Source: https://business.vic.gov.au/business-information/finance/cash-flow/improve-your-cash-flow, https://svbusinessconsultants.com/2020/07/31/10-commandments-of-cash-flow-management/, https://agicap.com/en/article/deal-with-cashflow-issues/, https://www.hiltonbairdcollections.co.uk/10-commandments-cash-flow-management/, https://www.grantthornton.ee/en/insights1/the-ten-commandments-of-cash-flow-management-how-to-keep-a-business-viable-in-uncertain-times/)
  • ✅ Poor cash flow management can lead to business failure, and banks and lenders have tools to identify businesses with cash flow issues. (Source: https://svbusinessconsultants.com/2020/07/31/10-commandments-of-cash-flow-management/)
  • ✅ Causes of cash flow problems include profitability issues, insufficient turnover, and unexpected events like the COVID-19 pandemic. (Sources: https://agicap.com/en/article/deal-with-cashflow-issues/, https://www.grantthornton.ee/en/insights1/the-ten-commandments-of-cash-flow-management-how-to-keep-a-business-viable-in-uncertain-times/)
  • ✅ To improve cash flow, businesses can negotiate better payment terms, offer payment plans, and consider alternative financing options like invoice financing or factoring. (Sources: https://business.vic.gov.au/business-information/finance/cash-flow/improve-your-cash-flow, https://www.hiltonbairdcollections.co.uk/10-commandments-cash-flow-management/)
  • ✅ Entrepreneurs should proactively manage their company’s cash flow to be more flexible in an uncertain environment, like the one caused by recent events such as COVID-19, energy crises, and banking instability. (Source: https://www.grantthornton.ee/en/insights1/the-ten-commandments-of-cash-flow-management-how-to-keep-a-business-viable-in-uncertain-times/)

FAQs about Cash Flow Commandments: Unconventional Wisdom For Managing Business Finances

What are the tips to improve cash flow for businesses?

Jan Barned shares tips to improve cash flow for businesses:

Tip 1: Do a cash flow forecast

  • Prepare a cash flow forecast for the year ahead to spot potential issues early.
  • Use an Excel spreadsheet or accounting software to track cash flow.
  • Regularly check actual cash position against projection and deal with issues promptly.

Tip 2: Speed up payments from customers

  • Invoice promptly upon job completion.
  • Review payment terms and consider offering multiple payment options.
  • Ask for deposit on special orders or large jobs and progress payments throughout.
  • Send regular reminders and chase up late payers.
  • Consider offering payment plans to get paid sooner.

Tip 3: Manage expenses

  • Compare bills for regular overheads like phone or utilities.
  • Negotiate better rates or switch providers if possible.
  • Consider leasing instead of buying equipment to free up cash.
  • Review expenses regularly to identify areas to cut back on.

What are some danger signs of poor cash flow management?

Some danger signs of poor cash flow management include:

  • AP aging greater than AR aging
  • More than 10% of total AP or AR aging over 90 days
  • Clients with amounts over 90 days in AR aging summary
  • Little liquid assets on balance sheet
  • Negative equity on balance sheet
  • Unclear lending request purposes or poor debt service coverage.

Banks and lenders have tools to identify poor cash flow management in businesses.

How can companies manage cash flow issues?

Companies can manage cash flow issues by creating systems, updating their check register, improving their bill payment process, and identifying unnecessary costs by going through their expenditures and invoices, comparing them to average rates from competitors or asking for new estimates. It is crucial to follow a guide that can help manage the situation and have a working capital management plan.

What is Qonto, and how does it safeguard customer funds?

Qonto is a licensed Payment Institution supervised by the French Autorité de Contrôle Prudentiel et de Résolution (ACPR). Customer funds are safeguarded in compliance with relevant legislation, and a portion of the funds is held by banking partners Crédit Mutuel Arkéa or Natixis. The French Fonds de Garantie des Dépôts et de Résolution (FGDR) covers deposits up to €100,000 for each banking partner and client in case of bankruptcy. The remaining funds are fully covered by Crédit Agricole CIB or invested in eligible short-term monetary funds.

What events have affected the business environment in recent years, and how have they impacted different sectors?

In the past few years, various negative events have significantly affected the business environment, including COVID-19, Russia’s invasion of Ukraine, high inflation, rising interest rates, energy crisis, and instability in the banking sector. These events have led to an unpredictable environment, restrictions on economic activity, and changes in supply chains and availability of products and materials. Different sectors have been affected differently depending on their cost structure, supply chains, and loan financing rate. Entrepreneurs should proactively manage their company’s cash flow to be more flexible in an uncertain environment.

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