03 Apr 2012

Managing cash flows

What’s been your experience managing cash flows in your business? What strategies have you found effective?

Managing cash flow well is one of the most important skills an SME can perfect. Without it, your business can be placed under unnecessary financial strain.

At Brennan IT, the need to fund rapid growth has meant we’ve done our fair share of thinking about how to organise and maintain our cash flows.

Here are some tips we think might be useful for SMEs:

Predict and plan

Cash-flow forecasts are critical if a business is going to ensure that is has the cash on hand that it needs.

Because demand can be seasonal, 12 month forecasts are a minimum. Anticipate where costs lie, when they’re due, and how you will meet each. If you see a problem on the horizon, be sure to put a source of finance in place.

Opex, not Capex

Putting as much emphasis on opex expenditure as you can helps to smooth the cash flow bumps that large expenditures can deliver.

Organise your billing system

Many SMEs are so focused on their day-to-day operations that billing tasks can be neglected. However, a well-managed and fast system for billing is vital for any business that wants to maintain good cash flow. For best results and the fastest processes, make sure that yours is integrated with your other business applications.

Invoice timing

How you time the issuing of invoices will of course depend on the nature of your business and services. However, if you’re currently billing only at the end of the month, you may want to rethink.

It’s often the case that issuing at the earliest opportunity means that customers will not only pay earlier (which is good because according to Dun and Bradstreet, the typical Australian invoice is already paid three weeks late) but will also be more inclined to pay because the service they’ve received is fresh in their mind.

What do you think? Do you have any tips for managing cash flow?