I did an interview with www.businesslink.co.uk last week about the issue of managing cash in a new business. I’m lucky not to have to do very much on this on a day to day basis because Mary is a trained accountant and a ninja when it comes to numbers but guess I can talk with a bit of authority about how important this issue is. Here are my top tips!
Be aware of what your cash position actually is. This can be a really depressing exercise, particularly when you are starting out and there just isn’t enough cash in the system. It’s worth persevering with though because whatever chance you have of fixing the issue when you know how bad it is, if you ignore it, it will bite you in the ass every time. having honest and up to date visibility of when you’re going to run out of cash at least gives you the ability to do something about that.
Be honest with yourself and your suppliers. A key element of managing cash flow where there isn’t enough cash in your business is to be honest with the people who are affected. Companies who fail to pay their employees or who pay them late are normally on the way out so hat one is fairly sacrosanct but it’s perfectly normal for a viable business to be a bit late in paying its suppliers. I think the best strategy though is to be honest – tell the supplier that their invoice will be paid in X weeks and, and this is the important bit, pay them when you said you will. None of your suppliers will be happy about getting paid a bit late but mostly they’ll understand and be prepared to work with you.
Be proactive about getting paid and making sure that the cash into the business is as reliable as it can be. Some good things to do are to phone your creditors a week or so after you send an invoice to check that they’ve got it and that it’ll be paid within the next X days. You don’t need to be pushy about this and frankly, any excuse to talk to your customer is worth taking…. You never know what they might need to buy from you next!
Finally don’t panic and dont be scared. Having cash-flow pain is something that every entrepreneur has to learn to deal with. It’s often a horrible part of your job but you just have to get on with and not worry unduly. As long as you have revenues coming you can normally manage to stretch the cash you have for as long as you need.