Why You Need to Monitor Your Cash Flow and How You Can Improve It

Why you need to monitor your business’s cash flow 

Cash flow is the lifeblood of any business. It is the movement of money into and out of a business, and it is essential for ensuring that a business can meet its financial obligations. 

If you don’t keep a check on your cash flow then issues will start to appear and could become very problematic if not bought under control.

Here are a few of the main reasons why you need to be diligent.

 

To avoid running out of money

This is perhaps the most important reason why you need to keep an eye on cash flow. If a business does not have enough cash on hand to meet its expenses, it could be forced to close its doors. This is especially true for small businesses, which often have limited access to financing. 

 

To make informed financial decisions 

By tracking cash flow, you can make better decisions about how to allocate their resources. For example, if a business is experiencing a cash flow shortage, it may need to delay expansion plans or cut costs. This can help the business to stay afloat in the short term and position itself for long-term success. 

 

To identify potential problems early 

By monitoring cash flow, you can identify potential problems early on, such as slow-paying customers or rising expenses. This gives you time to take corrective action before the problems become serious. For example, if you notice that accounts receivable are increasing, you can take steps to collect payments from customers quicker. This can help to prevent a cash flow shortage from developing. 

 

To improve profitability

By improving cash flow, you can free up more money to invest in the business, which can lead to increased profits. For example, a business that has a good cash flow position may be able to invest in new equipment or marketing campaigns, which can help to increase sales and profits. 

 

How to improve your business’s cash flow 

It’s all well and good knowing that you need to keep an eye on your business’ cash flow but how do you actually improve it?

Here are a few things to get you started: 

 

Create a budget and stick to it 

This is one of the most important things that you can do to improve your cash flow. A budget will help you to track your spending and make sure that you are not overspending. There are many different budgeting methods available, so you can find one that works for you. 

 

Pay attention to your receivables

This means making sure that you are collecting payments from customers promptly. Slow-paying customers can put a strain on your cash flow, so it is important to follow up with them regularly. You may also want to consider offering discounts for early payment. 

 

Negotiate with your vendors 

See if you can get better payment terms or discounts from your suppliers. This can help to free up more cash flow each month. For example, you may be able to negotiate a longer payment term, which will give you more time to collect payments from your customers. 

 

Avoid unnecessary expenses

Take a close look at your expenses and see if there are any that you can cut back on. This could include things like unnecessary travel, entertainment, or office supplies. 

 

Build up a cash reserve

This will give you a cushion in case of unexpected expenses. A good rule of thumb is to have enough cash on hand to cover your expenses for at least three months. 

In addition to these tips, there are a number of other things that you can do to improve your cash flow.

For example, you may want to consider leasing instead of buying equipment, or using credit cards that offer rewards for business expenses. You can also look for ways to automate your billing and payment processes, which can help to free up your time and improve your cash flow. 

 

Bonus additional tips for improving business cash flow 

Here are some additional tips for improving cash flow: 

Set up a system for tracking expenses 

This could be as simple as using a spreadsheet or as complex as using a dedicated cash flow management software. The important thing is to track your expenses in a way that makes sense for you and your business. This will help you to see where your money is going and identify areas where you can cut back. There are a number of different ways to track expenses. You could use a spreadsheet, a dedicated cash flow management software, or even a simple notebook. The most important thing is to choose a method that you will be comfortable with and that you can stick to. 

Once you have chosen a method, you need to start tracking your expenses. This means recording everything that you spend, no matter how small. You should also track your income so that you can see how much money you are bringing in and how much you are spending. 

Tracking your expenses will help you to see where your money is going. This will allow you to identify areas where you can cut back. For example, you may find that you are spending a lot of money on unnecessary travel or entertainment. Once you have identified these areas, you can start to make changes to your spending habits. 

 

Avoid impulse purchases

This is one of the easiest ways to improve your cash flow. Only buy things that you need and that you can afford. If you see something that you want, ask yourself if you really need it. If you don’t need it, don’t buy it. 

Impulse purchases are often the result of boredom or stress. If you are feeling bored or stressed, try to find other ways to deal with these emotions. For example, you could go for a walk, read a book, or spend time with friends and family. 

 

Pay down debt

This is another great way to improve your cash flow. The less debt you have, the more money you will have available to spend on other things. If you have high-interest debt, such as credit card debt, you should focus on paying this down first. 

There are a number of different ways to pay down debt. You could make larger payments each month, or you could consolidate your debt into a single loan with a lower interest rate. The best way to pay down debt will depend on your individual circumstances. 

 

Invest in cash flow management software

 This can help you to track your cash flow more easily and efficiently. There are a number of different cash flow management software programs available, so you can find one that fits your needs and budget. 

Cash flow management software can help you to track your income and expenses, create budgets, and forecast your cash flow. This can help you to identify potential problems early on and make adjustments as needed. 

Managing your cash flow is an important part of running a successful business. By following these tips, you can improve your cash flow and put your business on a more solid financial footing. 

 

Not sure what to do?

If your company is struggling with unmanageable HMRC debts, poor cash flow, or an uncertain future, you are not alone.

We speak to company directors struggling with the same issues as you every single day, and we are here to give you the help and guidance you need.

Call our team for free, no-obligation advice today on 0800 975 0380 or book a free consultation