How small businesses can manage cashflow better

Having more money coming in than going out is the main aim of a small business. And while that may seem so obvious, lack of cashflow is the main reason why most SMEs fail.

In those early days, you may hardly be making any profit at all but effective money management is crucial if you want to make your company grow – and of course, survive.

Here are a few ways you can help boost that cashflow.

Always have a cash reserve

Did you know you should aim to have three to six months of working capital in place to prepare for a crisis? Could you manage to pay your suppliers or staff if there were unexpected demands on your cashflow? Covid was a great example of how clients would suddenly be unable to pay or had to stop using your products or services.

Use apps to help manage cashflow

If you want to keep on top of your expenses you have to embrace cloud-based technology. For all those times you need some envelopes from the post office, there’s an app to record how much you spent – as we all know how quickly these costs add up.

Many apps allow you to take a photo of a receipt on your mobile and you very quickly have your expenses in one place and best of all, added up for you.

These types of apps are great for monitoring your accounts on the move. Accounting software can also help entrepreneurs with limited time for administration.

Invoice quickly

The best time to send an invoice is when you’ve completed a piece of work. If you wait until the end of the month to send an invoice for work you finished on the 2nd, it will take at least another fortnight – depending what terms you agreed – to see that cash in your bank account.

Send an invoice straight away for the quickest way to ensure payment and improve cashflow.

Offer project packages rather than hourly rates 

One way to always ensure good cashflow is to offer a cost per project rather than an hourly rate.

If you can also get this amount to be paid to your business in advance, you avoid being in arrears, which can drag you down.

Receiving some of the cash you are owed up front means you can plan spending and the growth of your business much more easily.

Reduce your cash outflow

It sounds so obvious and that’s because it is – but save those pennies! Don’t splash out on fancy coffee machines at work when a kettle and some coffee granules will do. If you can fix expensive equipment rather than replace it, this is key to saving the pounds. 

When it comes to computers and laptops, you could try looking for reconditioned equipment and avoid paying out more for upgrades unless absolutely essential.

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