Be careful how you plan and develop your business infrastructure – you want to keep a keen eye on costs, but you don’t want to strangle the business or compromise service delivery or quality.
You don’t have to buy the latest business software, equipment or sign up to endless monthly plans with business service providers to operate – take advantage of free software, look at second-hand equipment most importantly don’t commit yourself or your business to long-term financial contracts or give personal guarantees to anyone, without taking specialist legal and financial advice.
You will have developed your sales strategy and targeted the right customers, credit checked them if applicable to your business model and devised a sales forecast, as well as estimated when the cash will be collected in line with your terms and conditions of business.
Now it’s time to prepare a cashflow forecast and sanitize it once more. Your goal is to make it conservative and be cautious. Don’t overestimate your sales or underestimate the time it takes for your customers to pay you and that means physically receiving the cash.
Here are some other key points:
Make sure your cashflow forecast is pro-active and dynamic – a rolling cashflow will keep being updated and will allow you to plan continuously over a fixed period, such as 13-weeks which gives you enough visibility into the future to plan larger payments such as VAT. Factor in a provision for unexpected and unusual payments – there will always be something that comes out of the blue, so prepare for it.
Make sure you keep an eye on profit margins – it is easy to erode margins when you are looking to develop your sales, but any erosion will have an impact on cash receipts.
Build strong relationships with suppliers and negotiate any credit terms carefully – credit is still a debt in this sense, and you want to make sure that you can sell what you buy and not have your capital tied up in unsold stock.
Build strong relationships with the finance and purchasing departments of your customers if applicable and build them early and at the point of making the first sale. You must understand the internal processes and procedures of your customer and don’t rely on your sales contact.
Look at establishing lines of credit and at specialist trade finance – you may never need them, but they are good to have in place.
As you build your profits, look to build cash reserves.
Hire a good commercial accountant – you need someone who understands today’s commercial environment as well as the pure numbers and the right accountant is worth their weight in gold.
Sales and cashflow are two of the most critical components of business and the more time you spend in mastering them, the more success you will have in business.
I am going to talk about the one aspect that for me, sits above everything in business and life for that matter – and that is having the right mindset.