Managing cashflow effectively is critical for the survival and growth of your small business. It’s about planning and controlling the money coming in and out of your business. This ensures you have enough cash to cover your expenses and avoid becoming insolvent.

Let’s explore cashflow management tips, incorporating ideas and tools. Lets ensure you can effectively manage your cashflow and that you don’t run out of cash.

10 tips for cashflow management

Tip 1 Understand your cashflow

The first step in managing cashflow is to understand how it works within your business. This involves knowing when and how your income and expenses occur so that you can forecast your cashflow.

Bookkeeping software like Xero or QuickBooks will be your starting point. Start with the bank feed data that you can see on your dashboard. Download the bank transactions so you can create a cashflow forecast that includes all expected inflows (from sales, accounts receivable and so on) and outflows (such as operating expenses, inventory purchases and loan payments). You can create a forecast in excel or if you have the funds you can subscribe to add on software that pulls the data from Xero or QuickBooks.

Tip 2 Get to know your cashflow details

The forecast should be updated regularly to reflect actual figures and revised projections. Norwich Bookkeepers partners with Float, a software which automates the cashflow forecast process, integrating with accounting / bookkeeping software to provide real-time cashflow analysis.

Tip 3 Improve receivables

Accelerating the inflow of cash is crucial. Here are some ideas to keep the cash coming in.

Invoicing promptly

Use online invoicing tools like Xero, which can send invoices automatically and follow up on unpaid ones. In Xero set automated repeating invoices for repeating jobs and make online payment easy by linking the invoice set up to a card processor like Stripe.

Offering payment incentives

For customer who pay on invoice presentation: Provide discounts for early payments to encourage customers to pay sooner. Offering payment incentives is a strong strategy to encourage quicker customer payments, improving cashflow in.

By reducing the payment timeframe, you can use the incoming funds more effectively for operations or investments.

It’s important to carefully structure these discounts to ensure they don’t erode profit margins significantly. Calculating the right balance between incentivising early payments and maintaining profitability is key. Factor this in when you price, or ensure you really are making a profit on the job.

Implementing payment terms

Clearly define shorter payment terms to encourage quicker payments. Implementing these shorter payment terms involves setting and communicating clear, concise deadlines for payment from customers. Usual terms range from 10 to 30 days after invoice date. State your payment terms on all quotes and invoices. Your bookkeeper can set the payment terms within your Xero or QuickBooks.

Your bookkeeper can also add narrative to the invoice and invoice e-mail encouraging prompt payment. A good bookkeeper will also set up automated e-mail invoice reminders and regular statements to focus the customer on paying.

This strategy encourages faster payment, enhancing your business’s cashflow. It’s crucial to establish these terms upfront in contracts and invoices and to communicate them effectively to ensure customers are aware of their obligations. Establishing a consistent follow-up process for late payments is also essential to maintaining effective cashflow management.

Streamline payment processes

Think about signing customers up for direct debits. This can be highly beneficial. Utilising a service like GoCardless can significantly enhance cashflow. This approach not only streamlines the payment process but also ensures a more predictable income stream. Adopting such a method can be a game-changer for maintaining financial stability and operational efficiency. Using a payment service such as GoCardless means you spend less time chasing payments and are more productive.

Tip 4 Manage payables wisely

While you want cash to come in faster, it’s beneficial to slow down cash going out, without damaging relationships with suppliers. Strategies include:

• Negotiating longer payment terms with suppliers to keep cash longer.
• Using a credit card for any purchases (and then paying the balance before any interest is charged).
• Taking advantage of payment terms if you’re offered a discount for early payment – calculate if the cash saving outweighs the benefits of holding onto your cash longer.
• Efficient bookkeeping will mean bills are added to your Xero or QuickBooks promptly. This means you will know the upcoming payment amounts and the correct due dates. This data feeds into your cashflow forecast, so getting the dates right matters when monitoring cash.

Tip 5 Have cash savings and save the taxes

Maintaining a cash reserve is a safety net for all businesses, designed to shield against unforeseen cashflow dips. Determining the size of savings means analysing historical financial patterns and anticipating future needs.

• If you can get a good rate of interest, use a business savings account.
• As cash comes in, save the VAT element of the funds received into a savings account. That way you are not spending the VAT money.
• Know your PAYE liability and estimate any corporation tax. Then move that money regularly to a savings bank account. Moving funds to savings to cover your liabilities is something your bookkeeper can do for you or can advise you how much to save.

Tip 6 Use technology to your advantage

 All bookkeepers will tell you, whatever you need in business, there is almost certainly an app for that!

Technological advancements have introduced various tools to help small businesses manage cashflow more efficiently.

• Accounting / Bookkeeping software: Tools such as QuickBooks Online and Xero provide invaluable insights into your financials, automating cashflow forecasts and budgeting.
• Payment solutions: Platforms like PayPal, Stripe and GoCardless offer efficient ways to manage incoming payments, reducing the time it takes to receive funds. If customers can click a Pay Now link in your invoice you will get paid faster and have a more predictable cash inflow.
• Expense tracking: Apps like Dext help track and manage expenses, ensuring they are recorded and monitored effectively.
• Float for cashflow forecasting: Float software integrates with Xero and QuickBooks online and gives an excellent view of your business cashflow. It also allows you to give honest predictions about when you pay bills and when you expect customers to pay you.

Tip 7 Reduce costs and increase efficiency

Streamline operations

• Review your business operations regularly for efficiency improvements. This might mean automating repetitive tasks or reducing waste.
• Regularly review and update your business processes to keep on top of operations.
• By doing so, you can significantly lower your operational costs, improve productivity and ultimately increase profitability. This approach requires a commitment to continuous improvement and openness to adopting new technologies and methods that can drive better business outcomes.

Consider Outsourcing non-core activities

 Outsourcing tasks such as bookkeeping, payroll or IT can save money in the long run, allowing you to focus on core business activities.

• Outsourcing these tasks can not only optimise the functions but could also translate into significant cost savings over time. By delegating these areas to external experts, a business can reallocate resources and focus on its primary operations.
• This approach enhances operational efficiency and leverages the expertise of outsourced professionals, potentially leading to higher productivity and improved business outcomes.

Tip 8 Monitor inventory

Inventory management can significantly impact your cashflow.

Excessive stock can severely tie up your cash. Money that could be used for other operational expenses is instead locked up in stock that may move slowly. This not only affects liquidity but also increases storage costs and risks of obsolescence.

On the flip side, too little inventory can lead to stockouts, resulting in lost sales. This leads to dissatisfied customers. This, in turn, can damage a brand’s reputation, potentially driving customers to competitors. The opportunity cost of lost sales can sometimes exceed the cost savings from keeping inventory levels low.

There are software tools for Inventory management, analytics and forecasting to optimise inventory levels.

Tip 9 Focus on profitable sales

Not all sales are equally beneficial for cashflow. Focus on products or services with higher margins or faster turnover rates. Prioritising these higher-margin sales or quick-turnaround products enhances cashflow effectiveness. This strategic focus can allow you to maximise profit and liquidity by channelling efforts into the most financially rewarding areas of your business.

Analyse sales data to identify these items and adjust your sales and marketing efforts accordingly. A thorough analysis of sales data helps identify these key products or services allowing you to make decision that are cashflow focussed.

Tip 10 Regularly review strategy

Regular reviews of your cashflow management practices ensure they remain effective. This includes reassessing your cashflow forecasts, monitoring your business’s financial health, and staying informed about new tools that could improve your cashflow management.

Find an Expert

Engaging a bookkeeper can significantly enhance your cashflow management. Bookkeepers can bring specialised expertise to streamline your business’s financial operations, advising on strategies to best manage cash inflows and minimise cash outflows.

At Norwich Bookkeepers we encourage linking your Xero or QuickBooks to Float for staying on top of your cashflow.

By assessing your current financial status, they can craft tailored plans aimed at improving your cashflow, from reducing unnecessary expenses to advising on investment options. Additionally, they can provide insights into tax efficiencies to ensure you’re not overpaying, thereby improving your overall financial health and enabling more informed decision-making for sustained growth.

Get in touch to find out how Norwich Bookkeepers can help you manage your cashflow.