How to manage your cashflow and finances
All businesses exist to make money. The first few years for many small businesses are crucial to longer term success. Cash flow problems in the early years can arise for a number of reasons; failure to plan, being over or under ambitious or by not keeping track of finances. Here are some simple steps that can be taken to provide the best possible start.
Develop a financial plan or framework to monitor finances coming in and out. Frameworks can differ from business to business. It is important to find a plan that works for you and can be adapted as you grow. Try to forecast for at least six months in advance, estimating how much you anticipate selling and in turn, how much you will spend.
It is good to be ambitious in business, but important to remain realistic and make financial decisions based on the facts. Learn from mistakes as well as successes and carefully consider each risk and its possible outcomes.
Monitor your cash flow
Keep track of the flow of money coming in and out of your business. Most businesses will see peaks and dips in their cash flow. This is normal for most businesses and is OK providing that, at the end of a set financial period, the peaks outweigh the dips.
If your income is always greater, fantastic! If not, you need to ask why – is it necessary to restructure to avoid these dips, is there a pattern, or is there a legitimate reason that makes sense for your business or the industry in which you operate?
Debt is usually inevitable for small business in the early stages. Assess debt repayments regularly against cash flow to see if you can increase or reduce repayments. Don’t forget to shop around – WMT can help talk you through about better ways to borrow.
Invest in some good accounting software to produce reports on profit and loss, accounts and balance sheets, review these reports regularly. This will enable you to see where your finances are going and track finance. If the results of this do not look good, you can then assess areas of change and growth – is your pricing structure right, are you using credit to your advantage, are you receiving the money you are owed?
Putting financial management at the heart of your business is the key to success. Investing in a cloud accounting software, such as Xero, will make it easier for you to plan, forecast, monitor and chase your money to steer your business in the right direction.
For more information on managing your cashflow, finances and using Xero accounting software, contact Adrian Le Roux.