Stay on top of your cash flow

by Dominique Kotze, the co-founder of Yellow Door Collective, a Cape Town based full service digital marketing agency

Let’s face it, running a small business isn’t easy, and there are many sleepless nights
along the way. But, not being able to pay employees or debtors due to poor cash
flow is one of the toughest challenges to deal with. If you have the necessary turnover
but are struggling to pay the bills and your people, it’s time to examine how you’re
managing your money and your debtors, and where you’re over-spending.

Here are a few tips for staying on top of your cash flow:

Keep control of your expenses

First off, start planning. Keep tight control on what goes in and out of your bank account. Knowing this, almost down to the last cent, will help you make the right decisions, and could ultimately save your business from bankruptcy.

As a business owner, you should know exactly what your monthly expenses are and on what day of the month these are due to be paid. This will help you to identify “expensive” weeks. If possible, don’t make any unplanned for or extra payments during this time.

If cash is tight, don’t pay invoices ahead of time. If your supplier allows for a 30-day payment plan, then it makes sense to take advantage of this.

Keep track of your revenue

Next up, keep a record of when your customers pay their invoices, or figure out your flow of revenue. In our business, we use an online accounting system, which tells us how long each customer typically takes to pay their accounts.

If you bill monthly, it may be a good idea to have two invoice runs, one at the beginning and one in the middle of the month. This could help to steady the flow of cash into your account, as long as customers pay on time.

Don’t allow debtors to get out of hand

Keep on top of your debtors. Create a monthly accounts ageing report which shows you which accounts are overdue and for how long. Once a debt becomes too far overdue – how far is business dependent – it may be time to bring in a debt collection service or suspend your services until the customer pays up.

Another option for bigger projects is to break up the full project fee into phased invoices, billing for 25% of the work at a time. This allows you to plan your timeline and flow of
cash for each project in advance.

Take advantage of the tools available

There are many online accounting software systems available that are affordable and intuitive. All of them have mobile applications, which simplify keeping track of incomes and expenses. Also take advantage of tools like Google Sheets, especially if you’re collaborating
with other role-players such as a bookkeeper or an administrator. And remember that you don’t have to do everything yourself, ask an expert if it becomes too much of a challenge.

With these processes in place, managing your cash flow will be easier. Try to plan at least three months in advance for income and expenses that you are aware of, and do a weekly review if possible. When you know how much cash is in the bank at any given time, you’ll be able to make smarter decisions and sleep better at night.