Managing Cash Flow

Three crucial tips for assuring small business cash flow

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A common misconception is that great profits mean you have a healthy business. Yes, profits are what you are aiming for but cash flow is what will get you there. 

Another common misconception is that small businesses can’t learn much from the corporate giants. “After all,” you might say, “the big boys don’t have to play by the same rules that we do.” 

The big-box chains of the world may seem like they have unlimited funds but most don’t - just ask Sears as it closes its last store at the end of this year. 

Large or small, the name of the game is working capital. More has to come in than goes out over the long term or your doors will shut, eventually. 

Here are three crucial tips for assuring small business cash flow:

1. Set cash flow targets

Andrew Johnson, financial controller for PowWowNow, advises that every business should maintain a cash flow forecast. He suggests it be updated on a weekly basis for a business owner to have a realistic outlook of what to expect in the following six to 12 months. 

According to Johnson: "Setting targets for the credit controllers is an excellent way to ensure it is given the attention necessary and provides a level of satisfaction and ownership to hit and beat these."

2. Agree to clear payment terms

Suzannah Nichol of National Specialist Construction Council says establishing clear payments upfront is vital. She warns that you must make your payment terms clear from the outset, otherwise payment will become more and more unreliable and unclear. "If you don't know when a payment is overdue, how are you going to manage your cash flow?" she says. Nichol believes in the 30-day payment rule. She says it is just good business practice to pay within 30 days. Your employees should be paid within that 30-day window and you should pay your suppliers in the same manner.

3. Focus on cash flow so your business avoids being cash poor

The ready availability of cash often makes or breaks an organization. One study shows that 82 percent of businesses fail because of poor cash flow management.

If you need help to manage cash flow, we can help. At LVRG, we offer guidance in small business funding by providing working capital flow solutions. Profits are important, but no business can survive without positive cash flow.

 

Are cash flow irregularities affecting the level of success in your small business?

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Small business cash flow is likely the most difficult variable to manage. You can be up one month and down the next, but more than that, there can be no rhyme or reason behind the time of the month that you are busiest. Sometimes you feel like you need a crystal ball for managing your cash flow with any success, and future growth feels impossible because you are constantly treading water.

Get the working capital you need to smooth out the gaps in your small business cash flow

Even when your business is profitable, it can feel like you aren't making any progress due to the peaks and valleys caused by your cash flow. Small businesses typically run on owner investment, and these cash infusions can help ease the times when you are waiting for receivables to come in. While this can be an effective temporary solution, it is not viable once your business starts to grow. Can you imagine having to turn down a substantial order because you do not have the working capital available to get the job done? Taking your business to the next level usually requires a cash infusion beyond that of owner investment.

Small business funding can help your business grow without the headaches caused by cash flow irregularities

When you have reached a plateau and are being stopped from advancing due to a cash flow problem, capital funding is often a good solution. Working capital is one of the necessities of growth and without it, your business will likely stagnate and may even fail. In small businesses, every dollar counts and they are typically spent before they even reach your bank account. Now is the time to consider your options for raising working capital. Fast small business loans from a strategic funding source like LVRG can help you to smooth out any cash flow irregularities that your business is experiencing and provide the funds that you need to keep your business growing. 

Contact LVRG today and find out how we can help provide the capital you need to take your small business to the next level! Stop letting cash flow issues hold you back from the success that you deserve. Our team is on hand to answer all of your questions and discuss the options that are available for you and your business.

 

5 Tips on How to Help Improve Cash Flow in Your Small Business

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One of the biggest challenges that many small businesses face is following up on late payments, which can consume valuable time and resources. Having no cash to hand to take care of day-to-day expenses is a major reason why many businesses fail. In this blog, we'll run through some tips to help you maintain a positive cash flow for your small business:

5 Tips on How to Help Improve Cash Flow in Small Business -

Encourage customers to pay on time

The easiest way to eliminate cash flow problems is by ensuring, as far as possible, that you receive payment for goods and services on time. There are a number of ways you can do this. Try offering early payment discounts to customers who pay up front, for example, or shorten your payment terms from 30, 45 or 60 days to immediately after a project is completed. Asking for payment at specific stages of a project, or when certain milestones are completed, is another way to ensure the money keeps coming in.

Delay your payables

You can buy time by delaying or extending payables to vendors who don’t demand immediate payment. However, you should be careful not to damage the working relationship with your distributors. Only delay your payables if you are sure that your suppliers are OK with it - and watch out for any late fees!

Provide numerous payment options for your customers

Most payment delays are due to restrictions imposed by certain payment methods - the reasons checks are less popular these days is because of the time it takes for them to clear. Most customers will be happy to pay with credit or debit card, but consider accepting direct bank transfers, PayPal payments, and e-checks if you don't already do so.

Use the right cash-flow management tools

You need the right software to keep track of money inflow and outflow. With the right tools, you can save time and have a clearer, more informed picture of your payables and receivables.

Consider short-term financing

Taking out a short-term loan can help your business if you're facing a shortfall due to delayed payments from your clients. Short-term credit helps to cover the gap between receivables and payables, or settle emergency purchases. You can use these funds to pay your distributors. Fast small business loans from a strategic funding source like LVRG is the first step in growing your business.

For more assistance on how to finance your small business, or to find out what small business capital loans you qualify for, contact LVRG today. We offer various small business funding options to keep your business running without any hitches.

 

What are the signs of a healthy cash flow statement for your small business?

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It’s common for small business owners to feel out of their depth when it comes to managing their finances. In fact, one study found that 82% of small businesses fail because of cash flow problems. But how do you know when you’re doing OK and when you’re about to run into difficulty? Here’s an overview of the signs of a healthy cash flow statement in relation to the main sections of your statement.

The bottom line

The overall performance of your company can be determined from the net increase or decrease in your cash equivalents. It’s this that determines the change in your finances from the last period. However, it’s impossible to get a full analysis of a business’ performance from the bottom line alone. A more thorough look at each section of your cash flow statement is needed as they interact with one another, showing the kinds of activities your business is undertaking and its potential for growth.

Operational activities

When it comes to charting income from your principal business activities minus costs like accounts receivable and payable, deferred taxes and one-off charges, you should ideally end up with more money coming in than going out. Not only that, you should be able to see that it grows month on month. Decreasing sales, squeezed margins, and late customer payments are all reasons you could be experiencing a negative cash flow here. You can try and curb this by re-evaluating your marketing strategy, finding ways to add value to your service or product, and reducing your number of debtor days (the amount of time it takes customers to pay) as well as following up on late payments with penalties.

Investment activities

This is the income you have from buying and selling long-term assets, and if you are growing, it is generally regarded as a good thing if your net investment cash flow is negative. This might be because you are investing in new property or equipment in order to develop and innovate, which can be tantamount to expansion. The key is keeping it consistent.

Financing activities

The financing aspect of the cash flow statement records any incomings and outgoings between a business and its creditors. It’s often considered that a negative cash flow here is the marker of a stable business because it isn’t relying on selling its financial assets but instead income from its operational activities to pay off debts and dividends.

Still, it’s important to note that there’s nothing wrong with a positive net cash flow in this section from time to time, especially if you are a growing business. Borrowing working capital can help fund your expansion plans; the trick is ensuring any external financing is repaid on a consistent basis. This won’t just improve your cash flow statement but will raise your credit rating and make you more appealing to investors and further lines of credit to fund any future growth.

Maintaining a healthy cash flow

A healthy cash flow is crucial to ensure your business keeps ticking over, but if you’re struggling, you shouldn’t feel alone. A strategic funding source like like LVRG can help give some security to your small business with fast small business loans. Whether you’re in the restaurant, retail, manufacturing trade, or any other, your cash flow statement is there as a guide to help with revenue forecasting, enabling you to determine how much you can afford to borrow, and providing an incentive to financial backers about your ability to pay it back. Have questions? We're here to help!

 

How can a profitable business have cash flow problems?

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Before we demystify how a profitable business can have cash flow problems, it’s important to understand the difference between profit and cash flow. Cash flow represents the closing balance of a business after deducting the cash paid from the cash received in a given trade period. Any business needs to have a positive cash flow to handle the day-to-day expenses. On the other hand, profit represents the balance between the revenue and expenses incurred after every sale.

Recent studies show that more than 80% of small businesses fail due to cash flow problems. This statistic is alarming, yet sadly many of these closures could've been avoided with the proper cash flow management system in place. And, accessing capital at the right time. So, what could be the main cause of negative cash flow for a profitable business?

Growing too fast

Most entrepreneurs get overwhelmed by the progress of their business and seek to open other locations too soon. This can lead to over-trading, which puts a lot of pressure on short-term finances. The main problem occurs when the new locations have to rely on the already established ones before they start generating profits. This can often lead to major cash flow problems.

Small Business Growth Capital, Explained. And When Your Business Needs It.

Advanced payments

Paying for expenses in advance could mean that there will be more cash going out than coming in. For instance, paying for insurance has a negative effect on the cash flow because there will be no money flowing in to cover this deficit. Such expenses are necessary, but they reduce the amount of cash available to keep the business afloat.

Giving too much credit

While offering goods and services on credit can attract more sales, it can also lead to major cash flow problems. Late repayments and bad debts leave your business with no cash to operate.

Acquiring long-term assets

Using the cash you have to buy new equipment for the business will create a big gap, because more cash will be going out than coming in. It's good to budget for such expenses after a trading period, once the accounts have been reconciled and profits identified.

Paying for loans

Loan repayments can also have a serious effect on cash flow because once the money is paid, only the loan interest is recorded as an expense when calculating profits. However, loan repayment means that more cash will be going out, not just the interest. This leaves a negative balance on the cash flow, which may not be reflected when you come to calculate your profits.

You can avoid cash flow problems by seeking professional financial assistance by LVRG, the #1 name in small business cash flow funding. Click here to contact us for the best financial advice pertaining to growing your business, or click the button below to apply for funding.