How will you manage to keep on top of all the payments to be made once you are running your franchise?
Cashflow is critical to the success of any business as Andrew Graham, national head of business solutions, RSM Bird Cameron emphasises.
“It doesn’t matter what line of business you are in, if you are waiting for payment from customers then you can’t pay your suppliers for more products to sell.
“It is critical that business owners have strategies in place to manage cash flow and ensure there is enough cash in the business to maintain it, and look at ways to grow.”
TEN WAYS TO IMPROVE CASHFLOW
1. Consider giving discounts for payments upfront
Some businesses will have a discount window of a month that customers must pay within to receive the discount. This is easier to enforce than a penalty for late payment and is more attractive to customers.
2. Take deposits on products where possible
This ensures that some cash flow is generated upfront and also helps lock customers in to completing the transaction.
3. Take as long as you can to pay your bills without incurring a late fee
If a supplier gives 30 days, then take the full 30 so that the cash remains in your business for as long as possible. Pay regular suppliers before others as early payments can generate goodwill and improve the likelihood of obtaining credit and hold off on other for the full payment term.
4. Invest surplus funds in a high-interest-bearing account or other financial vehicle
There’s no point having idle money in a business, but just make sure you can get your hands on it quickly if the need arises.
5. Create a cash flow forecast
Know when the money should come in, when it is likely to come in and when you will have to pay it out. Knowledge is power as it will help you prepare for the inevitable delays.
6. Issue your invoices as soon as possible
This is one task that should be first on the list every day. Once sent, make sure you follow up the day after the invoice is overdue. A polite phone call to jog the memory or a second email can help things along.
7. Give customers options for payment
Emphasise your preference for electronic payment such as direct debit so you receive the payment as quickly as possible and don’t have to wait for cheques to clear. It is now common also to charge a surcharge for credit card use to help offset merchant fees.
8. Split payments for longer projects
This way you’re not waiting on payment for the full invoice at the end of the job. It has the advantage of providing some security of payment as well as increasing cash flow.
9. Monitor your stock
If you can pick and choose your merchandise, keep track of what is on your shelves and replace products that are unlikely to sell. Focus on the better-selling, higher-margin items.
10. When things get tight, triage your payments
Call all your suppliers and negotiate extended periods or deferred payments. Don’t pay the biggest debt first, pay the most important.