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Small business agony uncle James Caan gives tips on how to grow a business
Dear James,
I currently run an automotive business. I am looking for ways to actively increase my business efficiency. Do you have any advice on how to manage and improve my cash flow? Are there any products or services that would help this process?
Thanks,
Thomas
James says:
The old adage that cash is king is particularly apt as the UK recovers from recession, but surveys indicate that many small businesses are failing to manage cash efficiently. This directly affects profitability, the need to obtain credit and the availability of that credit.
Over the last few years many people who have built successful small businesses and relatively good brands are finding themselves in a similar situation to you Thomas. There are few reasons why this may be the case. Customers may have reduced their average spend or suppliers may have increased their minimum order or tightened up their payment terms. Nevertheless it leaves you in a situation where you need to review the cash flow of the business.
Thomas you need to recognise that cash flow is one the most important components of any business. If you run out of cash your business will simply cease to exist, so it’s incredibly important that you keep on top of it and start to adapt to the changes you see in your customer or client base.
Do you know when and where the money is going in and out of the business? If the answer is no I suggest that you start tracking this. Back in the days of Alexander Mann I used to keep my own daily ledger of my incomings and outgoings with important dates noted on my calendar. Nowadays I find it really useful having the financials emailed to me on a daily basis, then I can check them at any point in the week. I can’t stress enough how important it is to plan your cash flow forecast and just knowing the financials inside out will help you straight away.
Striking a good balance between being paid by your client base and paying out to your suppliers on time will help to ensure you don’t run into cash flow problems. Take a tip from what many suppliers are doing and set out tighter payment terms to your customers. There is no room in business to feel uncomfortable about changing your standard terms but remember to give your clients plenty of notice, so you aren’t damaging existing relationships. People never respond well to things that are suddenly forced upon them.
Going forward, be upfront about your terms at the beginning of the relationship and make sure your customers are comfortable with what you have outlined. You also need to keep your suppliers happy. Depending the size and nature of your cash flow you may want to look into other options such as using a factoring company to undertake the credit management.
The ability of a business to maximise cash and profits depends on being much more proactive in the way outstanding debts are managed. If you need to chase payments make sure you have the right person doing this. That individual needs to be persistent and realise the importance of bringing money in on time. If they don’t you will find yourself in an equally difficult position when your suppliers are demanding money that hasn’t been paid on time to them.
Also look within the business and see if there is a way to conserve cash or reduce costs. Do you have an accountant within the business? If you are managing all areas of the business yourself why don’t you hire one and get them to work on a freelance or project basis to keep costs down.
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The key to cash flow is to put a plan in place, if things do unfortunately take a turn for the worse at least you can be better prepared for it.
James
James Caan’s new book, Start Your Business in 7 Days, is out now. His free app, James Caan Business Secrets, is available to download.
Got a small-business problem? Contact: askjames@standard.co.uk