Steps to maximise your cashflow

Steps to maximise your cashflow

Working Capital

When starting a business it is crucial to secure adequate working capital from sources such as personal funds, grants, loans or possibly outside investors to ensure there is always sufficient cash resource to support the operation of the business.

Going forward, a sole proprietor or the directors and shareholders of a company should retain profits within the business and try not to withdraw too much money from the business at the beginning as this could result in cash flow problems.

Customers and Suppliers

It is also good practice to try to match the credit terms you offer to your customers with your production cycle and the credit terms you are offered by suppliers. If this is not possible, consider invoice financing to improve the cash flow of the business. Invoice financing allows businesses to borrow money secured against the value of their sales invoices to pay the amounts due to their outstanding customers.

This strategy helps businesses improve cash flow, pay their employees and pay suppliers any money owed, with the intention of reinvesting efforts into growing as a business.

However, remember that managing terms of sale and supply is a balancing act and you need to be able to trade with both customers and suppliers.

Fix your budgets to Maximise your cashflow

Take care to make provisions for all likely expenses. Carefully calculate a maximum figure you need to meet for expenditure on a monthly basis and try to stick to it. If possible, have money in a separate account ready to provide for any possible emergencies you may face as a business. An emergency is likely to crop up at any time in the future, so these funds can be used to plug short term cash flow gaps. You will be thankful for doing this if an emergency was to arise.

You should also consider whether your business overheads are accurately tailored to the financial resources generated by or available to the business e.g.

  • The type of premises you actually need, as opposed to the type of premises you would like to aspire to. Are they fit for purpose? If the premises are larger or more expensive than your business needs, consider if it is cost effective to downsize. It may also be possible to sublet part of the premises in order to generate some additional income
  • If you or your company own your trading premises, factor in the cost of financing those premises, i.e mortgage or other loan repayments
  • Are you utilising premises subject to a long term or a short term lease, or utilising serviced office space? If you have a short term lease or a tenancy which could be terminated at short notice, ensure you maintain some cash reserves to meet the costs of a possible relocation necessitated by the end of that tenancy

Use the same process with the purchase or leasing of equipment. Compare the costs of each possibility now and going forward.

Manage Risks

Ensure that you monitor customers’ accounts and try to keep them to terms and set credit limits.

Always seek out debt insurance for your main customers and suppliers. You also need to ensure you have adequate and appropriate insurance overall for your business to cover you against potential heavy costs of uninsured risks e.g. product quality liability, public liability or the costs of complying with health and safety regulations or enforcement notices. The type of insurance you need depends on your business, so you may want to do your research.

If you have tried all of the above steps and still cannot maintain sufficient cash to operate your business successfully, seek advice on what options are available to your business to restructure or secure new funding.

Straight talking advice from Yorkshire Powerhouse

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