Important Tips To Avoid A Cash Flow Crisis
The most important and basic element in the success of any business is the flow of money. It is important because it keeps the business intact. Therefore, keeping the track all the money which is going in and out is very much essential. Remember, your business may produce a large amount of profit but if your money is tangled in stock, you may be unable to pay your suppliers, which could prove very much dangerous for the reputation of your business.
Here are some important tips which could prove helpful in avoiding a cash flow crisis.
- Set up a cash flow forecast.
You must set targets for the next 6 to 12 months to keep a track of finances and to evad any shortfalls. One of the easiest and basic method to keeep a cash flow forecast is to have a simple spreadsheet listing income and costs on a monthly basis. Likewise, seasonal variation must also be kept under consideration. For instance, it is probable that during winter the heating bill may soar up.
- Try to keep yourself on top of stock management.
Efficient and effective stock management is as necessary and important as managing cash flow. Reconciliation of the bank accounts and stock records are required at the same time – be it on monthly or weekly basis. By doing so you will stay on top of items that you have left in stock and those that need re-ordering. There is no denying the fact that an efficient, managed and controlled stock control system will leave a postive impression on your cash flow since you will not be holding too much stock, or have your all money tied up.
- You must be friendly and outgoing with lenders.
You must stay on decent terms with lenders and keep them well-versed of any unexpected changes or outgoings in forecasts. By evolving a friendly relationship, based on belief and trust, with lenders and banks, they’ll be more likely to treat you constructively because you need future financial help.
- Try to get credit from a bank or financier in case of shortage of money.
This is also a viable and opportunistic option. If you think that your business is growing fast, for example you are going to have a new contract from a client but you have shortage of money, then you should seek the help of bank or financier. You will pay back your credit once the client will pay you. In this case, you will only have to pay the interest to the bank. In this case, you will avoid the cash flow crisis.
- You must be foresighted and anticipate the problem before it happens.
If you are updating your cash flow forecast regularly, observing the trends of market and keeping an eye on customers and suppliers, then you would be able to identify the potential cash flow problems in advance. You should be courageous and should not burry your head in sand like ostrich in order to avoid the problem. You should be abreast of all the circumstances and should remain in touch with your investor, accountant and business mentor to know about the possible circumstances.