Having a positive cash flow indicates that your business has money left over after receiving payments on invoices and paying all expenses incurred. On the other hand, a negative cash flow often suggests that the company is in a dangerous financial position as it may be unable to cover all associated running costs.
“Monitoring your cashflow position is crucial to the success of your business. It enables you to meet your financial obligations and better plan for the future,” James Chillman, UK country manager for Fergus.
Trouble managing cashflow
“Unfortunately, many businesses have trouble managing cashflow for a variety of reasons, as it’s usually the last thing on their mind at the end of a busy day.”
Utilising a job management system to monitor your cash flow position in real time allows you to focus on what you need to. In the changing economy, it helps to forecast and build sufficient reserves to cope with seasonal ups and downs. From quoting clients to ordering supplies, juggling multiple jobs and time-consuming admin tasks, things can get stressful pretty fast. But using a system to keep on top of your cash flow will help ensure your business is staying on track.
Four ways you can manage your cash flow
1. Have a financial plan
Setting a budget makes a huge difference. Establishing a budget for the various costs over the year (such as marketing, supplies, transport, wages, etc.) can help to reduce on-the-fly decision-making and allows you to see if you have room in your finances to spend money in a certain area or not.
2. Track your money
Avoid any nasty surprises by tracking your finances. Knowing where your money is coming from and where it is going can help you to know where you can cut costs each month or where you may be underquoting without realising it. The best way to track your money and stay on top of business finances is with job management software. This software allows you to gain real-time visibility of your business finances at a glance.
3. Chase up invoices
Your positive cash flow will suffer if clients aren’t timely with payments. Aside from gaining a visual into your overall finances, job management software can encourage faster customer payments by offering various payment options. Using an automatic platform to send out automated invoices and reminders can help cut down on the time it takes to get paid and can speed up your cash flow.
4. Plan ahead
Unfortunately, many tradespeople end up with cashflow issues because they’re owed a lot of money from clients and customers and other construction firms who are lagging on their payments. One way to save money and time and improve your cash flow is to talk to your suppliers before purchasing materials and negotiating their terms. Enquire whether you can get product discounts and return unused or no longer needed materials, and you can get longer payment options.
5. Forecast your cashflow
Cashflow forecasting involves estimating your future sales and expenses. The aim is to help you predict your cash flow on a month-to-month basis or for the whole year. Forecasting your cash flow can help to recession-proof your business because it will tell you if you’ll have enough money to run your business or expand it in the next 12 months.
Cashflow forecasting manually, without help from job management software, often leaves businesses encountering shortcomings as they don’t have sufficient data to predict rapid changes properly.
In essence, tracking cash flow and implementing a cashflow forecast helps to predict your future incomings and outgoings based on your current known costs and past revenue data.