Cash is the single most important ingredient of a successful business. It’s needed it to purchase stock and advertising, pay creditors and bank charges etc. the list is endless. Without cash, your business will soon start running ‘in the red.’

If it carries on for too long, whilst you wait for that big account to pay up, and you will rapidly arrive at a point where the bank will not extend you any more credit or increase your overdraft, and you will be unable to purchase supplies, or pay staff and other bills. The end result may well be that you go out of business. Just like that!

Obviously this is a worst case scenario which in real life could stop anywhere along that road. However it serves to illustrate how important good cash flow is to a business.

There will be times in the life of your business (probably several) when cash will be in short supply – during periods of rapid growth for instance – so how can you improve your cash flow?

Here are some simple tips to help you over the short term:

Always pay your bills on time, but try to time the payments to be received on or just before their due date. This will allow your money to stay in your account (and therefore available for use), for just that little bit longer.

If you have available cash, take advantage of early payment or prepayment discounts.

Consider leasing equipment or machinery instead of buying it. Remember that lease payments are tax deductible as well!

Set up good, reliable, accounting procedures That way you don’t allow invoices from customers to remain unpaid for long periods of time.

Offer discounts for prepayment. Beware that some companies will still pay by the last possible date, but deduct the discount anyway. Trying to recover the under payment later on will be expensive and probably cost more than the original amount. Still it can be an incentive to some businesses, particularly small or sole trader businesses.

When making purchases of any sort, try to negotiate the most advantageous terms and longest payment periods possible.

Keep stock levels as low as possible

Only buy in large amounts to get a discount when you are sure you can use the entire amount purchased.

Have a Sale! This will help to get rid of slow moving items. Any items that remain unsold, should be donated or written-off and disposed of.

Pay your tax bill on time to prevent incurring penalties.

Go through your recent (last year) purchases and look for unnecessary expenses which you will not repeat in the future.

Be a canny buyer when looking for office equipment or machinery. Determine what you can afford first and see what you can get for that amount. Don’t be seduced by lots of bells and whistles if you really don’t need them.

Look for used equipment and furnishings from auctions, liquidators, and used office furniture stores.

Copyright © Sue Williams 2006