Are you managing your cash flow effectively?

 Are you managing your cash flow effectively?

No matter whether you operate a single franchise outlet or multiple locations, you need to manage your cash flow effectively

When it comes to small businesses and franchises, cash is king. According to a US Bank study, 82 per cent of small businesses fail because of cash flow problems.

From petty cash to business capital, cash is what keeps small businesses alive. Whether it’s measured monthly, quarterly or annually, cash flow should always be at the forefront of your mind.

While most new franchise businesses fail in their first six months, cash flow problems more commonly affect those who survive that first turbulent year. Many new franchises try to grow too fast early on and they do so without keeping an eye on the financial side of the business.

Don’t ignore things like paying your suppliers, your own employees and chasing up cash due from customers. If you don’t pay attention to such cash flow issues, your new franchise will not last. For effective cash flow management, you need to keep an eye on all aspects of your financials, not just the making money part. Here are five tips to help you manage your cash flow more effectively.

1. Keep the books in order

Many first-time franchisees let their bookkeeping fall by the wayside because they’re so busy getting operations underway. Ignoring the books leads to bills not being paid and invoices not chased. Other issues include inconsistent invoicing figures, inaccurate reports and forecasting and general loss of financial control. So, the first thing you need to do is get your books in order. If your franchise has recommended suppliers or accounting software, find out whether there’s any training available to help you get to grips with any new procedures.

Once your books are in good order, you’ll be able to generate useful reports so that you can understand your cash flow much more easily.

2. Create a forecast

A cash flow forecast allows you to protect yourself from potential cash flow problems. A cash flow forecast allows you to see which months you can expect to see a cash deficit, and which months you can expect a surplus.

You can easily create a decent initial forecast with the help of other franchisees managing operations the same size as your own. This will give you’re a fair ballpark to start with.

Forecasts are great resources that help you make important decisions, such as when to make a capital expenditure, or whether or not to cut an expense. It will give you a pretty good idea of how much cash your franchise is going to need to thrive.

You can also gain insight into your franchise by comparing actual figures to what you forecasted. If you see discrepancies between the figures, you know to dig deeper to see what might be happening. For example, if you discover that you’re spending twice as much on electricity as you thought, you could look into energy efficiency and find ways to save energy. Or, it could be an indication that you need to switch providers for a more competitive rate.

3. Make payments easy

The sad truth is that there’s no way to guarantee that clients pay on time unless you charge them up front. But, you can reduce the likelihood of late payments by writing contracts with clear payment due dates.

Try and negotiate an early payment plan if possible as this will increase your cash flow as you will be receiving your payments earlier than expected. You can always offer incentives, such as a discount for full early payment.

Find ways of encouraging your clients to pay early and as you know them better than anyone else, it’s okay to be cheeky sometimes. Most importantly, make it as easy as possible for people to pay you. Make your payment terms easy to understand so there’s no confusion.

4. Don’t settle for payment terms

Like energy bills and car insurance, you should regularly review the terms you receive from suppliers. Are you a significant customer to them? Could you negotiate a better deal? If you have the cash in the bank, then negotiate with suppliers to pay more quickly in return for discounts.

Reach out to other franchisees who use the same suppliers and make sure they aren’t getting a better deal than you are. You can also seek advice on how to manage suppliers from those with more experience with them. This will ultimately return more on your money than the bank will in interest. The savings you make will improve your company’s cash flow.

5. Anticipate problems before they happen

Identify potential cash flow problems in advance to avert a crisis before it lands. By regularly updating your cash flow forecasts and monitoring market conditions, you can stay ahead of the game.

But, don’t just look internally; keeping an eye on customers and suppliers who may be in trouble can give you notice of how that could affect you in turn. Managing cash flow should always be a mid- to long-term concept; not a short-term strategy. That’s because there will always be cash flow ebbs and flows, regardless of your type of franchise.

Don’t bury your head in the sand and hope an issue will go away. A cash flow crisis only gets worse if you ignore it. Keep on top of your cash flow and you’ll be able to deal with problems quickly and efficiently.


Andy Margison is the founder and director of ZZap Ltd., a leading supplier of the latest cash handling technology for small businesses.

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