It’s every business owner’s worst nightmare when the pennies are not taking care of the pounds, and the debts are mounting up. So how do you successfully cash flow a business? Here are a few rules to follow:
Number 1 – do not panic
Easier said than done, but keeping calm when under financial strain is key to keeping your mind distraction-free and focused on finding a suitable solution to the situation.
Cash is an emotional trigger for most business owners. It can send you into ‘freeze mode’ and often you will want to burry your head in the sand. Instead, try to take a step back and focus on the bigger picture or the longer term, so you don’t get lost in the minor issues of the day-to-day problem.
Number 2 – write it down
Finances don’t come naturally to everyone. Often business owners start their business because they are passionate about a hobby or interest, but they have no previous financial background or training which can result in financial difficulties creeping in unnoticed.
So keep it simple and write down all financial incomings and outgoings you are aware of that could be coming in and going out of your business over the next quarter. If money is especially tight, you might want to break this exercise down into month or weeks.
Don’t discount any contracts that you are unsure will come to fruition – take a balanced view of the opportunity and the likelihood and add that in too.
Think about your overheads and outgoings, keep a standard list and add to it for project-based expenses as and when required.
Remember, this is a forecast for your eyes only (or whomever you wish to share it with). It is not set in stone, it is flexible. It is a download from your mind onto paper (or computer) to allow your mind the freedom to focus on other things.
Number 3 – focus on the solution, not the problem
Don’t spend too long looking at the problem – the balance.
Spend time looking at how you can solve it.
This will typically be finding ways to control your costs and sell your way out of debt. Your energy is best used thinking of and executing ways to generate more income at a lower acquisition cost, rather than worrying about your bank balance.
Number 4 – execute the solution
There are various ways you can bring in new money, or stretch the limits of what you have or are due.
Firstly, speak to those who owe you money and agree on a repayment plan that works for both parties. Talking things through in person or over the phone is so much more ‘people friendly’ than sending an email demanding money. Explain your situation verbally and seek understanding of the financial situation on both sides of the relationship.
Talk to your credit card company, and if you are VAT registered talk to the Inland Revenue, to explain your situation. Being open and honest with them is the best policy; hiding from them is only going to make things worse. Ask them how they can help you and listen to their advice. I promise you will not be the first person to have this type of conversation with them!
If you are seeking investment, or have already secured investment, look at how to stretch this money as far as possible to maximise the opportunity. It may mean you need to adjust the original plan you had for the investment – stay open to new possibilities and smarter ways of working with the resources you have.
Number 5 – prioritise your employees
Always, always, always make sure that your employees are paid on time. Without them, the business may fall into difficulties. Keep them motivated, engaged and informed. Identify their individual talents, skills and experience and see where they can help the business thrive in new ways.
Second to your employees are your key creditors. If you are struggling to pay them on time, let them know and agree a payment plan that helps to stabilise your cash flow without prohibiting theirs.
Number 6 – plan and monitor
It is very normal to have cash flow problems in a business. Remind yourself of this should the panic set in.
By planning and monitoring your cash flow regularly, you can keep a handle on things and avoid debt becoming uncontrollable. Figure out what timescale works best for you; should you plan weekly? Monthly? Quarterly?
If you are still feeling unsure, seek advice from an administrator or liquidator – they can be a friendly source of valuable information, and often offer advice free of charge.
