As a business owner in the UK, improving your cash flow is crucial for long-term success. Cash flow refers to the money flowing in and out of your business, essential for paying expenses, investing in growth, and staying afloat during lean times.
In this article, we’ll explore actionable strategies to help improve your cash flow.
Create a Cash Flow Forecast
A cash flow forecast projects your business’s cash inflows and outflows over a specific period, usually a year. This helps identify potential cash shortages and plan accordingly. By creating a cash flow forecast, you can make informed decisions about investing in growth, delaying purchases, or seeking financing.
Example: If your forecast shows a dip in cash flow during the summer months, you can plan to defer non-essential purchases or seek short-term financing.
Invoice Promptly and Follow Up on Late Payments
Late payments from customers are a common cause of cash flow problems. Invoice promptly and follow up on late payments to prevent this issue. Invoicing software that automates the process and sends reminders can be very effective.
According to MarketFinance, UK SMEs are owed £23.4 billion in late payments, impacting cash flow significantly
Tip : Use software like Xero or QuickBooks to set up automatic invoicing and payment reminders.
Negotiate Better Payment Terms with Suppliers
Negotiating better payment terms with suppliers can improve your cash flow. Ask for longer payment terms or discounts for early payments. Consider negotiating lower prices or finding alternative suppliers with more favourable terms.
Example: If your current supplier offers 30-day payment terms, negotiate for 60 days to give you more time to pay without straining your cash flow.
Monitor Inventory Levels
Excessive inventory ties up cash and can lead to cash flow issues. Conversely, insufficient inventory can result in lost sales. Monitor inventory levels to optimise cash flow. Inventory management software can help track stock accurately.
Small businesses in the UK lose an estimated £18 billion annually due to excess or insufficient inventory.
Example: Implement software like TradeGecko to monitor inventory levels and adjust orders based on sales trends.
Manage Your Expenses
Effective expense management is key to improving cash flow. Identify ways to reduce expenses without compromising quality or productivity. Renegotiate contracts with suppliers or cut non-essential expenses like travel or entertainment.
Consider Financing Options
If you need additional cash flow, consider financing options like business loans or lines of credit. Seek lenders that offer favourable terms and rates. Ensure you have a solid plan for using and repaying the loan before taking on debt.
UK Statistic: In 2020, 43% of UK SMEs used external finance, highlighting the importance of accessible funding for cash flow management.
Example: Approach your bank for a line of credit that you can draw on during cash flow shortages.
Improving cash flow is critical for the long-term success of your business. By creating a cash flow forecast, invoicing promptly, negotiating better payment terms with suppliers, monitoring inventory levels, managing expenses, and considering financing options, you can optimise your cash flow.
Remember if you want a chat to talk over your options with a certified Essex based accountant then send me a message, and use Beckett Taylor as Your Local Accountant.
