Going for growth? 6 important strategies for managing cashflow

January 09, 2018


How can I maintain a healthy cash flow as my business grows?

Keeping a healthy cash flow is crucial at every stage in the life of a small business, especially when you’re going for growth.

Generating more revenue, expanding your customer base, and branching out into new markets are all worthwhile aims. However, poor planning and growing beyond your means or growing too quickly can have a very damaging effect on your business. Without the right measures in place, growth can strain your existing resources and processes.

You should aim for is stable and steady growth, at a pace that’s right for your business, with optimised cash flow processes at its foundation.

In this guide, we’ll outline six key steps you should take to maintain a healthy cash flow and support continued growth.

Constant review of service and systems

Growing your business will inevitably make it harder to maintain the quality of your product and/or service.

As a small business, a high-quality, personalised service built on specialist expertise is likely to be one of your key USPs. Losing this element will negatively affect your brand and the ratio of return customers.

Ploughing capital into your existing processes is more likely to magnify the flaws in your system than allow you to provide a quality service for a larger catchment.

To maintain quality and a healthy cash flow, you should adopt an ongoing process of continuous monitoring and review of your product/service and systems as you grow.

This will enable you to identify and address any potential issues as they arise and ensure you are not throwing cash at ineffective and detrimental processes. It will also allow you to refine your management structure or accountancy provisions before things spiral out of control.

Create a cash reserve

As your business expands, so too will the cumulative value of your liabilities.

Many Business to Business customers will ask to sign up with 30, 60, or even 90-day payment terms. However, you may have to settle the tab for suppliers (and other expenses) on receipt, or at the end of the month.

This can easily create a cash flow bottleneck – particularly if you receive a significant order or several orders that are bigger than usual.

Begin by putting some of your profits aside, to create a cash reserve you can dip into when your monthly incomings and outgoings don’t add up.

Three to six months’ worth of operating expenses is a good figure to aim for. However, any amount you can set aside is likely to prove beneficial.

Utilise available funding sources

You can use a range of alternative cash flow funding sources designed to support growing SMEs.  Plan ahead and talk to your suppliers and lenders about securing more flexible payment and credit terms in the short to medium term.

  • Invoice factoring: This method gives you an advance on an unpaid invoice in return for a small fee. You can receive 80% of the invoice value up-front, followed by a second payment of 20%, minus fees, once your customer has settled their payment.
  • Purchase Order (PO) financing: Similar to invoice factoring, PO financing gives you an advance with which to complete an outstanding order. This arrangement is generally made between companies, with one financing a large portion of the other’s resource-related costs at a competitive rate.
  • Bank credit: This option comes with a warning – growing a business based on credit means paying interest, and could lead to insurmountable debt. However, when closely monitored, credit can be a handy option.

Renegotiate client terms

You can also try renegotiating payment terms with your clients, to speed up payment of accounts receivable.

The market standard is a 30-day payment window, so you may need to incentivise clients if you want them to come down from this.

Fortunately, there are a number of incentives you can offer that will be relatively low-cost, such as:

  • Free shipping
  • Expedited order processing
  • 24/7 customer service
  • Small discount

The most common discount arrangement is 2% off the invoice total, providing the client pays up within your preferred time frame.

Before you offer a discount, make sure you calculate whether receiving the money sooner would be more advantageous than the amount the discount will cost you.

Plan Staff Recruitment

It’s oh-so-tempting to capitalise on an uptick in trade by quickly drafting in new staff to generate a larger output.

However, having an under-utilised full-time employee when business is at a temporary ebb can seriously damage your overall cash flow.

Instead of rushing into hiring, take time to plan your business aims, the types of staff you’ll need to achieve them, and the benchmarks at which it’s financially feasible to commit to hiring.

Make sure you calculate all costs relating to:

  • Remuneration (current and future)
  • Recruitment
  • Insurance
  • Administration

Offset this against the amount the employee should generate once bedded-in, taking into account lower levels of productivity during the introductory stages.

Receive Expert Financial Guidance

Financial advice and guidance can be valuable assets, especially when you’re growing a small business.

Chances are you’re making one significant monetary decision after another, but don’t yet have the capital to bring in full-time staff with in-depth financial knowledge.

To ensure you are focusing where it matters and making the best-informed decisions you need someone who truly understands the nuances of finance, cash flow management, and your small business to give you the best opportunity for success.

A specialist management accountant can help you maintain a healthy cash flow, while increasing your sales and reducing costs wherever possible.

At Greavy & Co Accountants we can fit around your existing resources, whatever stage of growth you’re at. This means you only have to call on our services when you need us, and you don’t run up the costs associated with a full-time employee.

Our experienced team can take a macro-view of your finances, providing advice to overcome immediate challenges, as well as instigating a long-term growth strategy.

So if you are hoping to grow your business in 2018 and are looking for an expert Dublin Accountant to help you manage the process and to maintain a healthy cash flow as your business grows please call us now on (01) 604 0011 for a free consultation.