The 3 cashflow rules you must remember
Starting a new business is much the same as being a Reception Class teacher. Every moment is filled with things demanding your attention; all of which may well need action now. But in looking after all of those things, be careful not to ignore the quiet child in the corner. In business terms, that quiet child is cashflow, and unless it’s nurtured, things can go very badly wrong. Here’s how to avoid that happening.
Cash is never a problem until it stops flowing. That’s when things can start to go wrong for a business, from inability to take on new clients, which hinders growth, to being unable to pay bills, which can drive a company to the wall.
But by the time it becomes a problem, there’s another danger… That it’s too late to take effective remedial action.
So, the three cashflow rules of money management that you must remember are Prepare, Monitor, and Monitor.
There is no apology whatsoever for saying ‘monitor’ twice. That’s an indication of its importance, but first you need to have something to monitor. We’ve called that ‘preparation’.
Rule 1: Preparation
Since cash is the oil that lubricates the wheels of industry, you need to have it when you need it, and not some indeterminate point down the line. For example, what if a new client needs your help in the next 24 hours? Could you fund that? Having cash reserves may well make it possible, and if you haven’t earned that in your new business so far, the way to get it would be to establish a line of credit for just such an eventuality. And if you think that’s unnecessary, answer this question: Do you have home and contents insurance? Of course. It’s there in case you need it. Ships have lifeboats for the same reason.
Factoring: You might also consider invoice factoring, which involves a third party ‘buying’ your invoices and paying you more promptly than your client might. That eliminates the income free ‘flat spots’ when you’ve done the work, but suffer with reduced income until the invoice is settled.
Discounting: Another way to faster payment is to offer a discount for early settlement – but be careful. A large company (and they’re the ones who are so often tardy to pay) may take the discount and pay you when they’re good and ready anyway, so you lose twice.
Try to deal with smaller companies: They’re the ones who understand your situation better than the large corporate entities (or perhaps care more about it; sometimes it’s hard to tell). However, the result is that they’re more likely to pay promptly, and if they are slow, you’re far more likely to know which individual to contact to hurry things along.
Rule 2: Monitor
Knowledge is power, especially when it comes to knowing the financial status of your business. Understanding your financial position day by day means you’ll be able to spot issues as they arise, and snuff them out before they become problems.
It pays to know how many invoices are outstanding, how long you’ve been waiting, and the value of the outstanding invoices.
But that’s only part of the story. The other vital side of the coin, if you’ll pardon the pun, is the money you spend, and what you spend it on. Expense management is a vital dimension of cashflow, and the most effective and simplest way to do that is with an expense manager app, such as Solo Expenses. Solo Expenses has four different service levels, each ideally suited to particular kinds of companies (or to individuals, for that matter).
Diligent recording of all kinds of spending will not only show you what your company is spending, but also what it’s spending on. It will allow you to interrogate the data you’ve collected, making it possible to see where poor, or less-than-optimum, spending decisions have been made. Having this knowledge can keep cash in the business for longer, and even reduce spending on a year-by-year basis. That will make funds available for other important investments.
Because Solo Expenses is cloud based expense management software, employees can enter spending whenever they need to, wherever they are, and you, as business owner, can check spending on the same basis, as well as approve the spend.
Time is saved too, because the Solo Expenses business expense software can eliminate tedious old-fashioned paper-based systems, and give finance department employees more valuable time for other tasks – making them more efficient at no extra cost to the business.
The bottom line: Knowing about your business cashflow will enable you to make informed business decisions, and to keep your business fleet of foot, more able to take on the competition and continue to supply the kind of service to your customers that you’d like to receive yourself. Using effective online expense management will deliver a significant part of that knowledge in the most cost-effective way possible. There’s no better time to start than now; look at our service options here.
And finally: Here’s something to think about. Used correctly, there’s no reason why cloud based expense management software from Solo Expenses can’t pay for itself, offering you better expense management with reduced levels of effort on your part. We even offer a free trial. You’ll see where at the link in the previous paragraph. What’s not to like?