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Cash flow tips for small businesses

Having a healthy cash flow is essential for any business, big or small. Every year, thousands of otherwise profitable enterprises have to cease trading due to cash flow issues. Small businesses are far more likely to experience problems in this area than larger firms.

Here are our top tips for avoiding cash flow issues. If you are a small business owner following these pointers should considerably reduce your risk of falling foul of this serious issue:

Get paid on time

The most important step is to make sure that you are paid on time. No matter what type of business you run, at some point a client is going to try to avoid an invoice or pay you late. It is very important to have clear credit control procedures in place, and to put them into action the moment someone misses an invoice.

Keep your accounts up to date

Key to managing cash flow is maintaining up-to-date accounts. If you do this, you will be able to see pinch points coming and be able to address any issues while they are still manageable.

To be able to spot cash flow issues in advance, you will need to know how to generate and interpret cash flow reports. If you do not know how to do this, you ask an accountant to do it for you.

Know where to get credit in an emergency

Even if you are careful, every now and again you are going to find your cash reserves getting low. In that situation, you may need to borrow some cash to take you through that temporary pinch point.

It will be much easier to do that if you are prepared for the situation. Familiarising yourself with various financial products – such as asset financing and invoice financing – is important. Both of these loan options are easy for small firms to access, allowing short-term loans to be secured relatively quickly. However, they are complex products that you need to be familiar with and understand fully before utilising. It is far better to familiarise yourself with these products when your circumstances are calm and you have time rather than try to do so when you are under pressure and in desperate need of cash.

Grow cautiously

The last tip is to grow steadily. It can be tempting to take on a big contract too soon and commit every penny your firm has to one big project. Sometimes this works out, but you need to consider what would happen if that project went wrong, and make that part of deciding whether you take on such big jobs so soon.

Posted by Louise
February 10, 2015
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