Keeping cash flow under control

Focusing solely on meeting demand for products or services can be risky, especially if you have fixed assets and liabilities. In fact, many businesses fail due to cash flow problems. Whether you're launching a start-up or growing an existing business, prioritising cash flow management should be your number one goal.
 
To help you keep your finances in check, we've put together some basic tips that can make a big difference.
 
Plan ahead
Taking a proactive approach to cash flow means you always know what‘s on the horizon in the months to come. That way, you can plan accordingly and have funds lined up, putting you in a stronger position. Always issue sales invoices as timely as possible so you’re not waiting longer than necessary to get paid. Automated payments may be a good way of getting paid quickly, without spending time chasing up invoices.
 
Agree terms with clients
Most businesses cannot afford to wait for months to get paid. Unfortunately, some larger organisations force extended credit terms onto their suppliers or delay payment for longer than the agreed terms. If you need to contract with a larger company, make sure you agree to payment terms that work for you and ensure your customer honours this agreement. If their terms don’t work for you, it may be better to walk away. Sometimes, having many smaller customers can be a good thing, as you’re not overly dependent on any one of them.
 
Treat suppliers well
If you want to ensure the reliability of supply, then keep to the payment terms you agree with your suppliers. The basic rule is to treat your suppliers as you would wish to be treated. That way, they can trust you to pay on time and will try hard to look after you.
 
Keep cash flow forecasts up-to-date
Make sure you understand the amount of working capital you need to operate your business and keep up to date with cash flow forecasts. Your circumstances may change, if you lose a major client, take on extra staff, introduce a new project or service, move to larger premises or stock up ahead of a busy period, so carry out regular cash flow projections that factor in any changes.
 
Reassess and review
Regularly review your situation, checking to see how the numbers are stacking up, especially ahead of busy periods. Always be aware of what's coming in and going out, and be aware of any new challenges, whether of your own making or down to market conditions.
 
Be flexible
A solid financial plan will help your business stay flexible, ensuring you capitalise on growth conditions, cope with unexpected market shifts and weather any adverse conditions. It’s always good to have some cash in reserve, giving you the flexibility to update equipment, extend payment terms or introduce additional inventory. Think about the third rule: one third for taxes, one third for dividends, one third left in the business.

Shop around for finance
Always weigh up your funding choices when looking to grow your business. Make sure you understand any fees and charges up front and remember that the time to negotiate is before you sign, not afterwards.
 
The golden rules
Don’t borrow more than you need to, don’t deal with companies that don’t pay on time, treat your suppliers well, constantly review and reassess, and always keep some cash in reserve – these are the golden rules when running a small business.
 
At NLIG, we understand that protecting your business and its assets is crucial. If you can't eliminate risk, then mitigate it through appropriate insurance. With many years of experience in providing tailored insurance solutions for businesses across all sectors, we can advise on the best options for your needs. Whether you're arranging, renewing, or making changes, our team is available to help. To discuss your requirements, call us on 01992 703 300 or email insurance@nlig.co.uk