Running a small or medium-sized business (SME) is a tough gig. There are a million things to worry about, from hiring the right people to finding new customers.But there’s one thing that can really make or break your business: money. Not just how much you make, but when you get it.
That’s where “cash flow” matters – the money coming into your business minus the money going out. Put simply, if your cash flow is healthy, your business can breathe easy.
But without enough cash coming in, it can feel like you’re running on empty, and things may get pretty tight. You might struggle to invest in growth or, worse, pay the bills to keep the operations going – even when your business’s making a profit.
It’s crucial to have a good handle on your cash flow. Let’s talk about why it matters, what can go wrong, and some tips to help you keep your small business in the black.
What You Need to Know About Cash Flow
Let’s clear up one thing right away: profit isn’t the same as cash flow. They’re two sides of the same coin, but they’re not identical.
Profit is the money your business makes after you’ve paid off all your liabilities. But it doesn’t always mean you have cash in the bank. Cash flow is about the money going in and out of your business.
Suppose your business is a bucket. The money coming in (from sales, customer payments, invoices, etc.) is like water pouring into the bucket. The money going out (bills, rent, salaries, additional business expenses, etc.) is the water leaking out.
Obviously, this bucket needs to be balanced. If more water is pouring in than leaking out, your cash flow is good. Vice-versa and you’ve got a big trouble in your hands.
To keep a close eye on your business’s cash flow, you must know what’s coming in and going out to estimate how much money you’ll have at the end – the process analysts define as “cash flow forecasting/projection”.
If you know what to expect, it gets easier to plan ahead, ensuring you always have enough water in your bucket.
How Poor Cash Flow Can Impact Your Business
Can you imagine running out of gas while driving on a remote highway? That’s kind of what happens to your business when cash flow is low. It just grinds to a halt, and you can’t move forward.
Without enough cash moving in, you’ll struggle to pay the bills. Not only you might find it tough to pay your staff on time, leading to unhappy employees, but this can also damage your business’s reputation, making your partners and suppliers impatient and stop giving you credit in the future.
Bad cash flow also means missing out on opportunities, holding your business back from growing. Maybe you see a chance to buy new equipment or hire more staff, but without the cash, you can’t take advantage of it.
And in the worst-case scenario, poor cash flow leads to businesses closing down altogether. It’s a scary thought to keep you up at night, but it’s a real risk if you don’t learn how to make ends meet.
No one wants to be under that kind of pressure. That’s why you must keep a close eye on your cash flow, similar to your car’s fuel gauge – keep it topped up to avoid running out.
Tips to Improve Your Business’s Cash Flow
So, how can you keep that cash flowing in your business?
Accelerate Cash Inflows
Send out invoices promptly and sweeten the deal with discounts (or other incentives) for early payments. Also, consider using online payment options. It’ll help you get your hands on cash sooner!
Delay Cash Outflows
Negotiate better payment terms with suppliers, so you get more time to pay your bills. You should also put extra emphasis on managing your inventories carefully.
Cut Operating Costs
Identify ways to reduce business expenses without affecting it too much. Every penny counts!
Get External Financing
Sometimes, you might need a little extra cash to tide you over. If you do, consider exploring options like short-term loans or overdrafts. But be careful, as you’ll have to pay it back with interest.
Improving cash flow isn’t a quick fix; it takes time and effort. But if you’re smart with your money, you can give your business more breathing room to flourish.
Utilise Fuel Cards in Cash Flow Management
Fuel costs can be a major drain on your business cash flow, especially if you have a fleet of vehicles.
But there’s a handy tool that allows for easy management of these expenses and even saving some money: fuel cards.
Fuel cards are essentially pre-paid credit cards but for gas stations. You can choose a trusted provider like Radius (www.radius.com/en-gb/) that offers various fuel card options flexible to your needs. Here’s how they can benefit your cash flow:
Predictable Expenses
Fuel cards often offer fixed weekly prices or discounts off the pump price. It gives you a clear idea of how much the business spends on fuel weekly, simplifying your budgeting and cash flow forecasting.
Reduced Administration
With automated payments and paperless invoices, you’re no longer paying for gas on the spot, saving time and hassle managing fuel receipts and payments.
Potential Savings
Depending on the card you choose, you might benefit from discounts of up to 10 pence per litre, which adds up quickly for a business with high fuel consumption. Additionally, some cards offer loyalty points for even more savings.
Improved Visibility
With online platforms like Radius Velocity, you can track your fuel card usage, set spending limits, and access reports to understand driver behaviour, identify rooms for improvement, and potentially reduce fuel waste.
Fuel cards aren’t a magic bullet, but they can be valuable for businesses looking to streamline and potentially reduce fuel costs. They can provide you greater control, save time, and even contribute to a healthier cash flow.
Tools & Software for Cash Flow Management
You don’t have to do it all on your own. There are plenty of accounting software out there to manage your business’s cash flow, some of which help you track expenses and income, create forecasts, set alerts, and even send out invoices.
The best tool for you will depend on the scale of your business and budget. Some popular options for SMEs include FreshBooks, QuickBooks, Sage, Xero, and Zoho Books.
But if you’re not ready to invest in software, building spreadsheets in Microsoft Excel can be a great starting point, where you can create your own cash flow predictions and track spending manually.
Wrapping Up
Cash flow is the lifeblood of your business, without which even the most profitable company can hit hard times.
By understanding how cash flows in and out of your business, you can stay on top of things and start taking appropriate steps to improve your financial health.
After all, taking control of your cash flow is one of the first steps towards building a strong foundation for your small business – it might not be the most exciting part, but it’s vital for long-term stability.