Cash flow is of vital importance to the health of a business.
It has been said: “revenue is vanity, cash flow is sanity, but cash is king”. While it may look better to have large inflows of revenue from sales, the most important focus for a business is cash flow.
Over the years I’ve worked closely with many companies and seen firsthand the things the most successful ones have done. It’s very simple. Here I pass on insights and tips I have seen work.
The key is to get the flow just right, not too slow or fast. In general the aim is usually to increase sales and reduce costs. The latter will also reduce the need to borrow thereby cutting borrowing costs.
Make time to scrutinise all expenditure. Discover areas that may be unnecessary or where you may be over-paying. Identify the areas with the biggest potential for savings.
My Top 6 Cost Saving Tips
- Outgoings ideally need to keep pace with income. The flow should avoid being stagnant so do not tie cash up in stock unnecessarily, try to keep stock to a minimum.
- Once sales have been made the income needs to be realised as soon as practical. It may be beneficial to sacrifice some profit by offering a discount in return for early settlement. This is especially true if it avoids or reduces overdraft fees.
- Monitor debtors carefully on a regular basis to ensure prompt payment where possible.
- When paying for goods look to take advantage of possible early payment discounts. Alternatively, if a supplier offers attractive credit terms it may be beneficial to take the full 60 days to pay them and retain funds for as long as possible.
- If paying for transactions in a foreign currency be aware that most credit cards charge extra for conversion. Consider using specialist foreign currency credit cards or trading accounts for such purchases.
- Avoid the very high charges made for withdrawing cash on some credit cards if at all possible. Shop around for the best deals.