Cash is paramount for a small company. Forget to manage your cash and you can say goodbye to your business. Managing cash can be a major problem for the small business, especially if you are an owner manager and you are working in the business and not on it. The finances form an important part of your business plan, as discussed in the last issue. If ever you met with me or a Business Link Business Adviser we will have asked you about your cashflow and cashflow forecasts. Put simply, this is when cash is likely to come into and leave your business. It is important to have the planning in place around it and fully understand when you may need to introduce more cash into the business. At times, you may come up against cash flow problems and there are many reasons for this:

• Taking on financial commitments without planning and before you are ready for them – e.g. a new employee.
• Under estimating the cash needed to fund stock and work in progress.
• Failing to agree clear payment terms with customers, making your credit control harder and leading to delays in getting payment.
• Failing to carry out adequate credit control in chasing payment.
• Rapid sales growth.

Of course there are many more, but those are a few of the main ones. Below are some important actions to help reduce cash flow problems: 

• Have a robust credit control system in place and make your customers aware of how it works. Call them before the invoice is due as a gentle reminder; don’t wait until it is late – if you aren’t keen on doing this then there are factoring companies out there who can help. Always credit check your customers before offering them a credit facility. A small outlay at this stage could save a lot of money and stress in the future.
• Slowing down your sales growth may seem drastic, but this can reduce the chance of over trading, where you may not have the cash to fulfil your orders. This can be done through offering extended lead times to your customers.
• Don’t forget two of the more obvious ways of maximising cashflow and these are increase prices and reduce overheads. Ask yourself when you last reviewed your prices and what your competitors are charging. And how many businesses really scrutinise their overheads on a regular basis?
• There are also late payment rules that allow you to charge interest on overdue accounts. Look at www.payontime.co.uk/start_up/su_legislation.html for further information.

Continual planning and reviewing of your cashflow is important. If you are unsure of how to do this, talk to your accountant or business adviser. Keep a very close and upto date eye on your accounts. Remember it is good to use historical data to plan for your future, but it is critical to look at your accounts regularly and to keep them bang up to date so you can always see where you are and adjust your cashflow forecast and business plan into the future, to enable the success of your business.