Getting to grips with cashflow

By: Brendan Flattery

Date: 19 March 2010

Cashflow is the lifeblood of any organisation. Getting it wrong means that your business will fail, but getting it right at a time of economic uncertainty is a significant challenge.

Having a healthy cashflow is crucial for all companies, but can have a massive impact for start-ups. A new business can only survive for a short time with a negative cash flow, and ultimately the business will end up insolvent. Start-ups must adopt processes to help manage their cashflow from the moment they are set up.

Late payments are a significant problem for entrepreneurs to deal with. Half  of the small businesses polled by Sage in its monthly Omnibus said they had been impacted by late payments over the last twelve months.

For start-ups waiting to improve their business cashflow, there are a number of steps to take, including:

Know where your money is – It sounds simple, but a lot of small businesses will fail because their owner doesn’t keep a close eye on the funds coming in and out of the business. That visibility is best achieved by maintaining regular updates on your cashflow forecasts.

Know your customers – Many businesses have a set date for paying invoices, learn when these are for your customers and record the date. If the date passes and you are yet to be paid, then there is a good chance that something is not right and you can follow up with your customer.

Set-up an online automated contingency plan – This will help you actively manage your cashflow. It is critical that start-ups remain aware of how much money they are owed and when payments are due, so that late payments do not occur in the first instance. However, if they do occur good management can ensure the late payment does not have a damaging effect on the overall cashflow. These are all aspects that business accounting software can help you get to grips with.

By implementing theses correct processes a start-up will be able to manage their financial planning effectively, forecast the year ahead and identify any potential cashflow issues. By following these guidelines and implementing the right software, businesses can make sure they remain strong and cash positive.

Brendan Flattery is the Managing Director of the Small Business Division at Sage UK and Ireland.


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