Irrespective of the size of your business, you need to understand the nature and sources of your finances. As a business owner, there is a need to ensure continuous cash inflow.
There should be a clear strategy to provide the ability to meet all known obligations and those unforeseen events.
To prevent unintended consequences, business owners should adapt to sound financial management to avoid supply-chain delays or interruptions caused by cash flow problems.
Below are a few tips that will help you have better control of your finances.
1. Ensure you have an effective plan
You must develop a business plan that will guide your activities during the year. Ensure that your employees provide input into such plans and that they are committed to achieving agreed goals. Ensure all key managers are aligned on the agreed goals and understand the impact on your financial goals.
There is a need to identify potential impediments and mitigating factors. The essential items in the budget like strategies, expected profit, and anticipated cash flow should be well understood by all key stakeholders.
In developing your business plan, be realistic, yet you should set stretch goals.
2. You are encouraged to depict Cash Flow in charts
Charts usually speak louder than absolute numbers as you can easily see the trend. There exist different kinds of tools (basic excel, etc.) that can be used to depict both inflows and outflows; and interpret the movement over different periods.
You can also net off your cash inflow and cash outflow to depict what the net cash looks like and make informed decisions. Similar charts depict other variables like profit trend, margin trend, cost per unit, and other metrics you have set for the business.
3. Ensure you have an Effective Invoicing Process
To ensure early collection from customers, there is a need to have an efficient but robust invoice collection program. Need to make sure that cash is received as and when due. If not, there should be an auto follow up on such customers. There is a need to avoid unpaid invoices that could lead to the non-availability of cash to run the business.
Depending on the nature of the business, you may consider offering an early payment discount to customers that pay early. Also, you may have a policy to charge late fees if the customers do not make full payment within a specified period.
More to come!