One of the great things about running a solo or micro business is that your accounts don’t have to be anything like as complex as they would be for a larger business. But it can be hard to know where you can sensibly take short cuts and where they could lead you into trouble later on.
So what about cashflow management?
First of all, let’s look at what cashflow management actually is. On the face of it, you might think that if you added up all your money coming into your business and then subtracted all your costs, your cashflow would be what is left. But that’s only part of the story.
Let’s say you’re a freelance writer. You’ve been working hard for a few months so you’ve earned some income, at least in theory. But if your clients don’t pay up on time, you don’t actually have cash to spend. Now for a writer that might mean that you can’t pay the mortgage this month, which is nasty enough. But for a business where stock or materials need to be bought it’s even more serious because you need money in your current account to buy more stock.
(Note: cashflow management and cash management are two different things. Cash management solutions make sure that a business collects all the money that’s owed to it e.g. a debt collection service or taking payments electronically.)
So cashflow is absolutely vital for the survival of your business.
But here’s why cashflow isn’t the killer for micro businesses that it can be for larger ones. The sums involved tend to be much smaller, so you can often get yourself through a tight spot using your personal credit card. Of course you need to be careful with that one, but now and again it’s not a big problem. You might also be able to throw some personal savings into the pot to until some money comes in.
Even so, it’s a good idea to keep on top of your cashflow because it makes running your business easier, as well as saving you interest. And cashflow management is going to be essential if you plan to grow your business in the future.
So what can you do right now to improve your cashflow?
- Ask your clients to pay you sooner
- Chase your debts promptly
- Order less stock/materials but order them more often
- Negotiate longer credit terms from suppliers
- Increase your sales, for example sell more to your existing customers, track down old customers and see if they would like to buy something else or make your sales and marketing more effective.
- Reduce your costs, make your business more efficient, become more productive.
- Do a cashflow forecast. If you Google ‘cashflow forecast’ you’ll find loads of templates and spreadsheets you can download and fill in. But if this seems like overkill for your very small business, just plan out when your cash is likely to flow out of your business (e.g. you buy stock, equipment, repay a loan, pay your own wages or your taxes) and flow in (from sales to your customers) then you can make sure, in advance, that you have enough money at the right time.
In short, cashflow management is worth the bother for a micro business. It doesn’t have to be complicated or take very long, and it could save you both stress and money.
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