This article is an extract from LegalVision’s Online Business Manual. Download the full Manual here.
Keeping finances organised forms a crucial part of any successful business. Anna Fitzgerald, Corporate Relations at Prospa, lists some tips on how to manage cash flow, including managing inventory, invoices, taking payment and watching cash flow.
How to Maintain Steady Cash Flow
An online business’ success depends on positive cash flow. Making sales should be your primary focus, but ensuring you have sufficient cash to finance your inventory and pay your team members is also essential. Whether you are opening a brick-and-mortar or click-to-order store, here are five tips to help you maintain your cash flow.
1. Automate your invoices
Staying on top of your invoices is critical to keeping your cash flow steady. Cloud-based accounting software can help you automate your invoicing process. Platforms like Xero can notify you when payments have been received, send invoice reminder emails to customers and notify you when invoices are overdue. This will reduce the cost of collecting invoices and reduce your accounts receivable.
2. Manage your inventory effectively
Holding too much inventory can tie up cash – especially if you are trading goods that are highly priced. It can also increase associated costs such as insurance and storage costs. Inventory management software like Zoho can help you keep track of your bestselling and most profitable products. It will also keep you up-to-date on stock levels and can automate the re-ordering process.
3. Get paid promptly
Unfavourable payment terms lead to countless cash flow issues for small business owners. To free up vital cash for your business, you should request that your customers make payment within 7 or 14 days.
At the same time, negotiate with your suppliers to extend payable terms to 30 or 60 days. These are common payment terms, so they should be acceptable, but take care to maintain positive relationships with your customers and suppliers.
4. Monitor your cash flow closely
Make sure you check your cash flow on a weekly basis to stay on top of potential challenges such as seasonal downturns in sales and tax or superannuation payments. It’s also a good idea to review your business performance against forecasts on a monthly basis. If cash flow is tight, experiment with solutions such as offering discounts for early payment or negotiating longer terms with suppliers.
5. Financing options
Securing access to funding before you encounter cash flow issues is a good way to ensure your cash flow needs are managed.
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