| Managing Cash Flow |
| Written by Administrator | |
| Wednesday, 25 May 2005 | |
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Running a business will always be challenging. But there are steps you can put in place to help smooth the way. We give you some advice on managing payments, insuring your business, cutting costs and expanding your business. It can be so frustrating. You’ve pulled out all the stops — and done a good job. Your customer is satisfied. You’ve sent in your invoice, exactly as agreed. And yet, for some unknown reason, the cheque fails to materialise. Months later, and despite repeated phone calls, you are still no further forward. It’s a sad fact that many businesses fail not through any fault of their own, but because their customers haven’t paid up in time. Some never pay at all! So, whatever else you do, it’s worth putting in place the necessary steps to get money rolling in — and keep your cash- flow healthy. Too many people feel embarrassed about chasing late payers. Don’t be. You and your colleagues deserve to get your wages — and you need to be paid on time. If invoices remain outstanding, your business will suffer. So what can you do? First of all, decide on an appropriate timetable for getting paid. Consider asking for an advance or stage payments. And, to avoid problems later on, make sure your customers know exactly how much you are going to charge and when you require payment. Investigate new clients to assess their credit-worthiness. For example, take up trade or bank references — a valuable way of finding out your customer’s credit status. If you have sales staff, find out what they think about the customer’s ability to pay, since they may be much closer to the business concerned. If you need more help in managing your cashflow, consider a factoring or invoice-discounting service which provides businesses with finance secured against their unpaid invoices. Your bank or financial adviser can provide details. Finally, remember to send out invoices at the same time as you deliver the goods or services, and keep following up with statements and reminder letters if the money has not materialised. Polite telephone calls never go amiss. Customers who cannot pay should be put on a stop list so that you don’t incur further losses. And, of course, be prepared to sue if all else fails. Your livelihood could also be put at risk unless you arrange adequate business insurance. But where do you start? As a first step, conduct a safety audit, looking at all aspects, such as problems and threats you might face. For instance, have there been any crimes or incidents involving your business, or those of neighbouring premises? If so, look at how you would deal with these problems and produce a safety plan for you and your staff to observe. Find out what type of insurance cover you must legally purchase. If you belong to a trade association, it might be able to give you helpful advice. Those who run a limited company, or if you employ people, will need to take out Employer’s Liability Insurance. It’s also compulsory to take out third-party liability insurance for a motor vehicle. Certain types of plant and equipment require insurance, and some sectors require special risks to be insured. But the list does not stop here. It’s worth considering insuring your business assets and buildings against material damage such as fire and flood. And cover for situations including business interruption, public and/or product liability, goods in transit, key person insurance, professional indemnity, health and travel insurance. There are many other areas where insurance might be appropriate, but remember, you might be able to cut the number of risks you insure against by first undertaking a safety audit. Begin with the essentials. TIGHTENING YOUR BELTS Running a successful business also demands a vigilant eye when it comes to costs. Start cutting down on expenses and the bottom line should benefit relatively quickly. Begin by asking yourself: • Could you get better deals on your utility suppliers, phones, faxes and mobiles? • Are you shopping around for the best deal on your supplies and raw materials, and have you negotiated firmly enough with your usual suppliers? Could you go back for a discount? • Are you keeping stock to a minimum, but acceptable, level? • Could you find lower insurance quotes for adequate cover? • Should you move premises to pay less rent or mortgage? Given that staff costs tend to be the biggest drain on resources, look at outsourcing areas of the business or deploying people more effectively, perhaps investing in modern technology to fulfil certain requirements. Take a long, hard look at your options and you could achieve fairly significant cost savings. You should also look at ways of developing your business and strengthening its bottom line. We live in a competitive world, and if you are not developing new markets, your competitors will be! But don’t feel you are alone. Lots of organisations would be more than happy to offer advice, from your bank, lawyer or accountant, to government departments, chambers of commerce or local business clubs. While some might charge for their advice, others will offer help free-of-charge. As you become more successful, you are likely to need outside investment, such as venture capital, bank loans or funding from individual investors. If you are looking for an injection of capital or funds for expansion, as well as consulting your financial advisers, you might also want to contact the Business Angels network. Business Angels primarily invest money in a company, and they are often looking for specific types of business opportunities. Running a successful business is never easy. But put some of the above recommendations into practice, and you should begin to see an improvement, not only in the efficiency of your business, but also in your profitability! |
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