The 2020 Covid-19 crisis has highlighted the inadequacy of current cash reserves for many businesses. They simply don’t have enough cash to sustain the business in a crisis. Businesses need to maximise cash reserves if they are to outlast the storm.
Now is the time to make a permanent change to your business processes and cost structure so you can build those reserves. At the same time, business owners need to be part of a world solution, and that means paying our bills on time where possible.
11 strategies to maximise your cash reserves:
- Invoice your customers immediately upon the supply of products and services. The faster you invoice, the faster you’ll be paid.
- Shorten your payment terms, e.g. from 30th of the month to within 7 days of invoice. You’ll need to reflect any changes in your Terms of Trade, in key customer contracts, and on your website.
- Invoice directly from your accounting software such as Xero. This can enable faster payment.
- Negotiate prompt payment discounts with your suppliers. Don’t be bashful, there is no harm in asking.
- Get better at collecting the money you’re owed. Ask nicely to be paid by customers as soon as an invoice is overdue. The fast cash is in the 30-day column, not the 90-day column.
- Outsource proactive debtor management to a collection agency. This can be surprisingly cost-effective and transform your cash flow.
- Perform credit checks on new customers and make sure your Terms of Trade give you as much protection as possible if a debt goes bad. For example, put personal guarantees in place.
- Develop a personal spending budget and stick to it. Limiting your need to draw cash from your business. This will therefore reduce cash flow pressure on the business.
- Take costs out of the business where you can, but only where you should. This is an ideal time to review every line item in your Profit and Loss Statement. The shift to working online may allow you to change spending patterns.
- Have clear spending limits for team members who incur expenses on behalf of your business and regularly monitor these.
- And finally, prepare a Cashflow Forecast. Know what’s ahead of you and understand how positive changes will improve your cash reserves going forward. Don’t worry, we can help you with this.
Cash is oxygen for your business. As a digital marketing for accountants in Newcastle, we can help you put a cashflow improvement plan in place to maximise your cash reserves.
“The more a business owner knows about their cashflow, the more empowered they become.” – Nick Chandi