How to Manage & Improve Your Businesses Cash Flow.

When a business first starts trading it is relatively easy for them to keep track of their accounts as their expenses are fairly straight forward as the company will not be that large therefore, controlling the financial aspects of the business should be manageable even for those of us who are so great at maths.  However as the business starts growing the financial side of the business will become harder and harder to manage as the companies transactions increase in volume and become more frequent. This can sometimes lead to businesses experiencing cash flow difficulties. Cash flow is the movement of money into or out of a business, project, or financial product.

The reason that cash flow problems can be a major issue for a company is it means they may have liquidity problems. Liquidity in a nutshell is the ability for a business to pay off its short term debts. This can quickly escalate for if at any point the company fails to pay off an obligation when it is due because of lack of capital it means the company is insolvent and insolvency is the biggest cause of a company going bankrupt.

There are several ways in which Businesses can improve their cash flow:

• Bill promptly - invoicing promptly and regularly helps ensure a steadier flow of cash into the business. With companies you have longer term contracts with make sure that you establish regular payment dates

• Avoid overtrading – Trading within your means can help keep your cash flow manageable therefore don’t accept and attempt to fulfil orders if you don’t have the capital or resources to do so

• Recover debts – Ensure that you set deadlines on any payments owed to you when writing the contract and recover them if those deadlines are breached

• Trim your inventory – It may be worth undertaking a stock check on your inventory as excess inventory is essentially you tying up your cash in a warehouse. It may be worth re negotiating delivery rates and volumes with your suppliers. One option if you have a good relationship with your suppliers is to implement a JIT delivery system

• Sell assets – If you have assets that are not used by the company or not running at full capacity it might be worth selling them and then leasing them back at later date for ad-hoc purposes. Before doing this ensure that the sales will be profitable to the business in the long run

Although the pointers above can assist a manager on how to improve their businesses’ cash flow putting the data together into a viewable format can prove to be a lot harder, especially if you’re not so good with numbers. One of the alternatives for businesses who are struggling to manage their cash flow is to employ a part time finance director. There are several benefits for a small to medium sized company of doing this and these are:

• Cost effective: Financial Directors can command an extremely high salary for what they do therefore a small company may not be able to afford to pay someone for a role that doesn’t require a full time position

• In addition to the previous point a part time financial director will still have the same skill set as a full time one. This will mean that a company will still get the same level of expertise when doing their finances just they won’t have to pay as much for their services

• Flexibility: Having a part time financial director in comparison to a full time one increase the flexibility of a company as they can get a financial statement whenever it suits them whether that is on a weekly, monthly or even a yearly basis.

• Also there are many ways in which to interpret numbers and therefore a full time financial director may display them in a way which makes them look great but this may not be to the benefit of the company. Outsourcing this work to someone who has an unbiased view of the business could be far more effective as you will get a much better overview of any particular cash flow problems that you may be having

If your business is successful and begins to expand it may become necessary to hire a financial director in a full time position as your business will be making transactions on a daily basis. This will mean you will need to ensure that incoming and outgoing payments are well documented. However until you get to that stage it would be a shrewd business decision to hire a financial director part time to ensure that your finances are in order and are step up for your company to make the next step.