It's a much-overused cliché but cash really is king when you are running a small business. It does not matter how much money is coming into the business in the future if you don't have enough to keep you going. You have your own suppliers to pay, staff who expect wages every month, rent to pay and so on.
The importance of forecasting cannot be overestimated. Start with the money you have right now, then list all your anticipated incomings followed by all your anticipated outgoings. Don't overestimate incomes and underestimate outgoings - although your cash flow forecast is never going to be set in stone, be as realistic as you can be and if anything be conservative.
Late payments are a perennial problem for small businesses; a majority of them will experience late payments on a regular basis causing real problems for their business.
Clearly state the payment terms and make sure your customer understands them; after that chase them as soon as soon as they exceed their limits. Before setting your terms when you pick a partner to work with, make sure you check their record, are they a reliable payer? Find out as much as you can to avoid them being responsible for your cash flow hitting choppy waters.
To avoid the nightmare of constantly chasing late payments reward your customers who actually pay you on time. This practice may impact your profit margin but it will help your management of cash flow by giving customers an incentive to pay early rather than late.
This may cost you processing fees but it will ensure that you do get paid and it will leave out the hassle of having to chase late payments.
Cash flow forecasts can never be totally accurate and most small businesses will experience periods of time when they burn cash. If you fear this is about to happen don't bury your head in the sand and keep your fingers crossed that something will turn up. This is when you need to speak to your bank or seek professional advice to ensure your failure to face the music results in your business is damaged.
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