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How to keep your cash flowing

Money, money, money must be funny in a rich man's world goes the Abba song. However, most businesses don't operate in this privileged place and need to manage their money. So how do you manage your business - is it for profits or for cash?

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It's simple. If you have cash you stay in business, if you don't then you won't! Here are some top tips which will help your business maintain a healthy cash register. If you think you are already "cash aware", check how consistently, and to what extent, you already apply these tips.

1. Increase sales revenues

Sales are the most vital sources of cash coming in to your business. So boost your cash by selling more and/or charging higher prices. For example: Run special promotions or discounts to increase sales volumes. Bundle in something which costs you little or nothing but allows you to put up prices. Price can be less of an issue than you think. Identify which of your products are not so price-sensitive and charge more.

2. Manage costs

Cost management is absolutely critical. Put reliable cost control processes in place, and reward results in bonus programmes. For example: Set realistic budgets and make sure that you have managers responsible for analysing and controlling costs. Set clear targets for outputs, staffing levels, consumption of materials, energy and other resources, recycling and space allocation. Review results regularly; identify and implement improvements. Stock costs you money so manage inventory levels and don't re-order too early (or too late!).

3. Control receivables and payables

Collecting and paying money is fundamental to running a business and requires good discipline and customer/supplier management processes. Negotiate better payment terms. Carry out regular credit checks. Issue your invoices on time. Establish reliable credit control processes. If you need to get cash early, consider factoring.

4. Optimise investments

The cash effects of investments are often very poorly analysed and planned. Investments can generate more cash in the future but may be a short-term drain on your financial resources. So: Decide the best time to invest. Establish how quickly the investment will pay back. Identify the optimum expenditure phasing. Consider alternatives, for example, leasing.

5. Implement rigorous cash planning

Last, but not least, make sure that you have excellent cash planning and forecasting processes in place. Don't let others tell you that forecasting is too difficult. Remember that many issues may be interrelated, so look at the overall cash effect. Strike the right cash in/cash out balance for your business. Judging this is often difficult, so get specialist help where necessary.

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