One of the main reasons start-ups fail is because of cash flow issues. The focus is wrongly put upon making profit rather than managing cash-flow. If your company doesn’t have a steady stream of income you’re unlikely to be around within a years’ time.
A successful business needs to ensure there is a balance between money in and money out, with more focus upon the former. Having good cash-flow management will open your business for opportunities you may have thought not feasible.
Why cash-flow management is important
Individual businesses have different cash-flow needs. Achieving and managing the kind of cash-flow that is suited to your business is crucial to its long-term survival and its ability to evolve and grow. Creating and maintaining a system which allows you to see exactly what is coming in and out of your business will give you a clearer picture on how you can develop and expand.
Xero is a very useful cloud accounting tool which enables you to view your cash-flow at the click of a button. It is effective in that it allows you to see your financial position in real-time so you can make well-informed business decisions immediately. Click here to read our blog post about the benefits of using Xero and how to get set-up.
Follow these useful steps for better management of money-in and money-out:
- Set cash-flow targets
The best way to manage your cash-flow is to forecast for the future, either 6 or 12 months in the future. This will help you identify any weak spots in your business’ finances which will assist in preparation for the future.
- Use technology to manage your cash-flow
Cash-flow forecasting may sound difficult but if you adopt a cash-flow management system such as Xero, it will perform all forecasting for you, in real-time. Using a system is one of the biggest time-savers in business and can help you keep better track of your business in less amount of time.
- Agreeing payment terms
“You are nothing without your customer”. That is why setting payment terms in writing, in advance is important to ensure a good working relationship. If you begin without clear payment terms, you will be unclear about when you will be getting paid. Also, by having a range of payment methods will encourage speed of payments, as you’ll be helping make it easier for your customers.
- Invoice correctly
An effective invoice contains all of the relevant information that a customer needs to know in a concise and easy to read format. There should be no surprises for a customer when an invoice is issued. Invoicing should be issued in a timely manner once the work is completed. Xero can handle all of your invoicing for you, it will even send out automatic invoice reminders to save you time and help you get paid on time.
- Cut costs
The most obvious, and potentially the easiest method of cash-flow management, is to cut costs. You could think about using contractors instead of employing staff, or move your IT systems to the cloud. However, when cutting costs, ensure you aren’t harming your business relationships.
If you are running into cash-flow issues and you aren’t sure why, Xero can assist in answering your questions. All your bills, invoices and day-to-day transactions can be viewed in real-time which will show you a rolling forecast and give you an accurate picture of where your business stands. This will provide a detailed starting point to make improvements to your cash-flow.
As always if you have any questions regarding your cash-flow or Xero get in touch on 0845 054 8560.