Maintaining a healthy cashflow sometimes feels like a big headache, especially with the ongoing cost-of-living crisis increasing your costs.
Even profitable businesses can fall down if they don’t know how to effectively manage their finances and adapt to new challenges.
So, our experts have outlined how to stay afloat during these difficult times:
Take care of your balance sheet
Your balance sheet will be able to tell you all you need to know about your business’s finances, beyond your current profits and losses.
By having the ‘net worth’ of your business readily available, your balance sheet can quickly give you a good indication of your company’s current performance whilst alerting you to any potential concerns about the cash you have available.
This will allow you to gain deeper insights into how strong your business’s finances are, and help you build a better picture of how resilient it will be to economic shocks.
Shorten your Cash Conversion Cycle
Depending on your current position, you may be worried about how your business will improve or maintain its current cashflow when faced with the potential of an upcoming recession.
To keep on top of this, consider how long your Cash Conversion Cycle is.
This will tell you how long it takes for cash to go from your customers’ pockets to your accounts.
In essence, it covers the time scale between buying stock from your supplier, paying the supplier for that stock, to then selling to your customers, and receiving the payment from them.
Of course, your aim should be to keep this cycle as short as possible, as this will free up cash.
If there is a long wait between selling products to your customers and receiving the payment, consider altering your payment systems.
Introducing more regular communication with debtors and ensuring there is a clear deadline for payments can deter late payments.
Another option is to introduce fines for late payments. However, this could jeopardise your relationship with customers.
There may also be scope to revisit your payment plans with suppliers. For instance, you may be able to decrease the length of time between paying suppliers and receiving payments from customers. Negotiating these terms will make sure both parties come to a fair agreement.
For advice on improving your business’s cashflow, contact our team today.