Managing Your Cashflow: 5 Tips for SMEs

Running a small or medium-sized enterprise (SME) is rewarding, but it most definitely comes with its own set of challenges! One of the most crucial aspects of managing your SME successfully is maintaining a healthy cash flow. After all, it’s the lifeblood of your business, ensuring that you can pay your bills, your employees, as well as invest in growth opportunities.  

To help you on your way to successfully managing your business’ cash flow, we’ve put together our five essential tips. 

1: Make sure you’re being proactive 

Managing cashflow can be overwhelming, especially if you’re new to it, but it’s important not to bury your head in the sand and instead be proactive. Take a close look at your current financial management practices, including payroll, bill payments, purchases, and investments.  

Ask yourself questions like:  

Payment tracking 

Do you have a reliable system for tracking payments from clients and customers? 

Clear payment terms 

Have you established clear payment terms when signing new contracts and agreements?  

Billing process 

Are your billing processes too lenient, causing delays in receiving payments? 

Late payment protocol 

Do you have a well-defined process for chasing late payments? 

By addressing these questions honestly, you can lay the groundwork for better cash flow management, as well as help you address any flaws in your current operations – win, win! 

2: Reassess your business regularly   

Running an SME is a bit like being the captain of a ship – you’ve got to handle everything from keeping clients and suppliers happy to managing your crew and watching your spending. It’s crucial to keep a close eye on your finances because as your business grows, new challenges can crop up. For example, you might need to invest in more materials, beef up your stock, or hire some extra hands. 

To keep things sailing smoothly, make sure to have regular chats with your clients and suppliers to ensure your financial agreements still make sense. Take a good look at your workforce needs to keep up with your business’s growth and adjust your expenses when needed. By staying on top of these things, you’ll steer your business (we’ll stop with the ship metaphors now!) toward a healthy financial future. 

3: Create a cash flow forecast  

Creating a cash flow forecast is important as it allows you to predict the ebb and flow of cash over a specific period, helping you to get an approximate idea of profits, expenses, where to make investments, and more.  

As your business’s financial landscape is constantly changing, it is essential to keep your cash flow forecast up to date to ensure the information is as accurate as possible. Here’s how you can do it: 

Inventory and work-in-progress 

Regularly review your stock levels and work-in-progress inventory to ensure they align with your business’s current needs. 

Contractual agreements 

Check your contractual agreements, including costs and payment terms, to identify any areas that may need adjustment. 

Business model changes 

Consider any recent changes you’ve made to your business model, as they can have a significant impact on your cash flow. 

By regularly updating your cash flow forecast, you can better anticipate potential financial challenges and take proactive measures to address them, helping your business to thrive! 

4: Consider cash flow finance 

While it might sound counterintuitive, cash flow finance can be a strategic move for SMEs. This option allows you to reduce your upfront capital expenditure, helping you better balance your books and avoid cash flow shortages.  

We recommend talking with a good accountant (like us!) if you’re unsure about whether this is the right choice for you and your business. 

5: Stay agile 

In the world of SMEs, flexibility is important and it’s wise to have a financial safety net in place. Consider implementing the simple 1/3 rule: allocate one-third of your profits for taxes, set aside another third for dividends, and leave the remaining third within the business. 

This approach ensures that you’re prepared for unexpected expenses, tax obligations, and also allows you to reward yourself and your shareholders when the business is doing well. Being financially flexible and able to jump on new opportunities gives your SME a competitive advantage and safeguards your cash flow against unforeseen challenges. 

Looking for an accurate and reliable accountant? Contact us today to arrange an appointment and find out how we can help. 

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