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It might sound obvious, but cash flow is vital to keeping your business running smoothly. It’s amazing how many business owners forget this, or fail to realise that they’re falling behind.
In some ways, cash flow is extremely simple: earn more than you spend, and you’ll make a profit. In reality, it can be very complicated. Outgoings are variable, and not always under your control. So is income – clients come and go, prices rise and fall, demand changes, and bills are not always paid on time.
Managing cash flow means knowing how to work around these factors and avoid sliding into debt.
Expenses vs income
Running a business isn’t cheap. Depending on what you do, you’ll have monthly expenses like rent and power, phone and internet, wages and production costs. Then there are the less frequent expenses – buying computers and tablets for staff, paying for travel to meet clients, investing in software to help manage the business. These costs need to be spread out over the year and included in your monthly costs.
All your expenses add up to a monthly break-even point. This is the amount of income you need to bring in to cover the basics – to make a profit, you obviously need to bring in even more.
Income is the other side of the coin. Whether you sell products or perform a service, you will be bringing in money from various clients and customers every month. For most businesses, this will vary each month depending on sales, clients coming and going, customer demand, and even the time of year.
Visible problems, viable solutions
One of the most common cash flow problems is…not knowing you have a cash flow problem. Many businesses have a poor overview of their month-to-month finances, which means they may not realise they’re not going to break even for the month until it’s too late.
If you use a specialist software system to manage your business, you should know whether you’re going to break even or make a profit, in advance. In Roll, for example, we give you clear information on how much you're likely to invoice in the current month vs your breakeven point for your business. This gives you the ability to rectify the situation where you may have a shortfall ahead of time by approaching new clients, following up on quotes that you have in market or chasing up old debts. Much easier than scrambling to cover costs at the end of the month.
Don’t forget debt
Unpaid invoices can seriously impact on cash flow. Whether your clients are simply slack with their accounts or deliberately trying to avoid payment, failing to receive cash puts you on the back foot and makes it difficult to pay your invoices for the month.
That’s why keeping track of your invoices is so important. Your business needs to know exactly what’s been billed and when it’s due, so you can chase up any outstanding debts as quickly as possible. Again, good software will give you an overview of monthly invoices and help you track overdue bills. The earlier you chase them up, the faster they’ll be resolved, so you’re less likely to be left with a hole in your monthly cash flow. Don't be afraid to chase your debtors, it's a vital part of the business process and important for the wellbeing of your company.
When you’re just starting out in business, having a profitable month feels fantastic. But you can’t stop there. You need to be able to see into the future – what’s your cash flow for the next few months? How much new work is coming up? If a big project is coming to an end, do you have something else to take its place?
Having a clear overview of incoming work helps you set goals and make changes if needed. You can go out and hustle for new clients if the month is looking thin, or get old ones to sign off on new projects. If you have a busy period coming up, you can call in freelancers or part time staff to get the work done. It’s all about knowing what’s coming, so you’re not caught on the back foot.
Roll is designed to improve visibility across your business, helping you manage workflow – and increase cash flow.
Need help managing cash flow in your business? Try Roll Software for free.