Cash flow is the most immediate challenge for many businesses.
Before looking for external capital, businesses of every size should make sure they are managing cash effectively.
Some fairly simple steps can help maximise available cash. Being able to demonstrate good cash flow management also sends out the right signals to potential investors or lenders.
The only way cash flow can be kept under control is by understanding the ins and outs. A weekly cash-flow forecast is often essential, particularly in a growing business.
Management must have an understanding of the amount of cash and working capital required to operate the business. Business owners that actively scrutinise this are in a position to manage their cash position with much more rigour and confidence.
Working capital management examples
- review your stock and work-in-progress (WIP) levels, and aim to reduce excess stockholdings
- issue sales invoices in a timely manner and through best-practice credit management procedures. With payments collected within those terms, contractual agreements with suppliers should be reviewed to generate cash and suppliers paid according to credit terms
- carefully assess capital expenditure and give consideration to the cash-flow implications of outright purchase
- use automated payment methods wherever possible. Getting customers to pay by electronic transfer or through direct debit helps increase the speed and certainty of payment.
This approach to cash management is not just part of the preparation for taking on new investment or debt, it is a process that must be ongoing.
Your business plan should also demonstrate how you manage cash within the business. You can find out more in this part of the guide. There are also a number of other stages of preparation required before you seek finance – find out more here.
If you decide to look for investors, for these new stakeholders the scrutiny of cash flow will likely be even greater as the business’s journey proceeds.
When you are happy with your cash situation, then that’s a good time to review all your financing options. Start your journey today.