Businesses don’t go bust because of a lack of profitability. They go bust because they run out of cash. Ever heard the phrase “cash is king”. As a small business owner you must have come across this from time to time, but what does it actually mean and what can you do to influence your cash position for the better? Read on for some top tips.
Look at your customer debtors report. Be brutally honest and highlight potential bad debts. Then, implement cash control procedures to help chase the debt. Or hand them over to a debt collection agency. This can work well where you know you are unlikely to get the debtor to pay so you need to apply a little pressure.
Look at your suppliers and agree early settlement discounts or spread annual payments wherever possible and practical.
Operate a tax reserve account where you ‘put away’ a monthly amount to cover future tax and VAT liabilities. This will help you plan your own cash flow more efficiently.
Identifying and report costs. You may have taken on costs that were justifiable at the time but in a different environment can be seen as excessive. You need to identify and justify costs so that you can make informed decisions about what costs to cut.
Operate a simple forecast cashflow so you can identify pressure points before they happen.