Smart Strategies to Control your Cash
“You must gain control over your money or the lack of it will forever control you”
– Dave Ramsey
When it comes to running a successful business, cashflow is king. Managing your cash effectively builds confidence and ensures your small business can thrive. Whether you’re a startup or a seasoned business owner, here are 10 smart cashflow strategies tailored to help Nelson businesses succeed.
1. Set clear payment terms from day one
From the outset of any job or project, establish clear terms of trade. Outline when you expect to be paid, and include provisions for adding interest or debt collection costs for late payments. Have your customers sign off on these terms to avoid disputes.
2. Enforce payment deadlines
Stick to the payment terms you’ve set. Don’t let late payments slide - it impacts your cashflow and sets a precedent that can hurt your business long-term.
3. Hire a debt collector for slow payers
A contracted debt collector can help you recover overdue payments while letting you focus on running your business. Don’t wait too long to act - stay proactive.
4. Set money aside for tax
Unexpected tax bills can cripple your business. Allocate a percentage of every payment you receive into a separate bank account specifically for taxes. Not sure what percentage to set aside? Our team can provide tailored advice for your business.
5. Stay on top of work in progress (WIP)
Avoid taking on too many jobs at once. Invoice regularly, reduce unfinished work, and set strict budgets for your team to stay within.
6. Optimise your stock levels
Don’t overstock your inventory. Keep just enough to cover the time between selling an item and restocking it. This frees up cash that would otherwise sit tied up in inventory.
7. Reduce obsolete stock
Monitor how long it takes to sell each item in your inventory. Slow-moving or obsolete stock eats into your cash reserves. Convert it into cash and reinvest in faster-selling items.
8. Finance fixed assets over their lifespan
When purchasing expensive fixed assets, align your financing terms with the lifespan of the asset. This way, you’ll spread the cost out over time without putting strain on your cashflow.
9. Set a budget and stick to It
Create a detailed budget for your income and expenses each year. If a new expense arises that isn’t in your budget, find ways to cut costs elsewhere to stay on track.
10. Build a Cash Reserve
A strong financial cushion can be a lifesaver. Aim to keep at least one month’s worth of expenses in your bank account, and ideally more. This “war chest” will give you peace of mind and help you weather unexpected challenges.
Cashflow is one of the most critical aspects of small business accounting. It impacts your ability to pay staff, invest in growth, and respond to opportunities. With the help of experienced accountants, you can create a cashflow strategy that keeps your business financially secure and primed for success.
Ready to take control of your cashflow? Let’s talk!