Getting on top of your cash flow

Getting on top of your cash flow

cashflow

Managing cash flow can sometimes feel like juggling flaming torches. It is by far the issue that keeps business owners most awake at night and stifle growth or can even lead to failure. Here are eight tips by CHRISTOFF OOSTHUYSEN to get on top of the basics of cash flow management, so that you may also consider how AI tools can help you towards achieving financial success.

In running my own businesses and supporting other entrepreneurs, I’ve found that there are a few basics to focus on in keeping your bank balance in the positive, while going through difficult times. And then, when these basics are covered, we may look to new tools, such as AI applications, to make us more efficient in growing our businesses.

Consider the following tips to keep the basics of your cash flow on track:

  1. Forecast: You have to predict your income and expenses as accurately as possible. It’s like having a financial crystal ball. Your past expenses offer accurate numbers and you can predict imminent customer payments by assigning a likeliness of funds arriving at a certain date. For most of us this implies using a simple spreadsheet for the forecasting.
  2. Invoicing: It may sound obvious, but don’t let those invoices pile up! Send them out promptly and set clear payment terms; and for larger clients it is OK to ask outright with which payment run your invoice will be paid. This keeps the cash flowing in on time.
  3. Receivables: You have to keep a close eye on your receivables. Follow up on overdue payments politely but firmly and immediately when due. This will allow you to update your forecast of inflows, based on the likeliness of receiving payments at specific dates.
  4. Payments: Make it easy for customers to pay you. Accept different payment methods, from credit cards to digital wallets. The easier it is to pay, the quicker you’ll get your money. And don’t be afraid to offer discounts for early settlement.
  5. Credit: An emergency loan or using your credit card to fund shortfalls are excessively expensive. Plan ahead by arranging a line of credit, such as an overdraft, before you actually need it. And make sure the credit record of your directors remain immaculate, as financiers will have access to their ratings much easier than assessing the business risk.
  6. Expenses: Monitor your expenses like a hawk and revisit supplier contracts regularly. You may be able to cut unnecessary costs and avoid overspending by asking for each expense item, what value it is adding to the business and to your customers.
  7. Suppliers: Not many small businesses consider their suppliers as possible financiers. They have an interest in your success, so it is worth asking for credit and to negotiate terms that will allow you to pay your suppliers after your customers already paid you.
  8. Accounting: It is essential that you invest in good accounting software. It simplifies everything from invoicing to tracking expenses, saving you time and headaches. It also makes staying compliant easier, but if you are only using it for compliance reports, you are missing the real value you can get from your accounting reports.

An important consideration is that you must always have a backup plan. When it is going well, set aside some cash for unexpected expenses or downturns. There is always something that you really want, which may become affordable when the business is doing well, but first think of your backup plan before splurging on unnecessary items.

How AI may help cashflow management

Artificial Intelligence (AI) applications are offering you much improved tools to optimise cash flow. With the basics of cashflow management covered, you may keep an eye on your options to include new tools to achieve smoother financial operations. Here are some considerations:

  • AI-powered financial planning tools can analyse your historical data, including sales trends, expenses, and customer payment patterns. This analysis helps generate accurate cash flow forecasts, allowing you to anticipate potential shortfalls and surpluses.
  • AI can automate repetitive bookkeeping tasks like categorising transactions, reconciling accounts, and generating invoices. This frees up valuable time and resources for you and your team to focus on core business activities.
  • AI can identify errors and inconsistencies in your data, ensuring your financial records are accurate and reliable for informed decision-making.
  • AI powered tools can analyse customer payment behaviour and predict who might be at risk of late payments. Early identification allows you to implement plans, such as automated payment reminders or offering early payment discounts.
  • AI can analyse sales data and predict future demand, allowing you to maintain optimal inventory levels. This reduces carrying costs, minimises the risk of dead stock, and ensures you have the right products available to meet customer needs, ultimately improving cash flow.
  • AI can analyse customer behaviour data to identify purchasing patterns, predict future needs, and personalise marketing campaigns. This allows you to target the right customers with the right products at the right time, leading to increased sales and a more predictable cash flow.

The good news is that AI tools are becoming increasingly accessible and affordable for small businesses. Start by evaluating your cash flow challenges. Are you struggling with forecasting, collections, or inventory management? You should focus on AI tools that address your specific needs.

When you have specific needs identified, research the features of the available tools, the pricing models, and integrations with your existing systems. A lot may be learnt from other business owners too, so read reviews and testimonials, or ask around in your network.

It is important that when you set out on your digitalisation journey, you don’t feel pressured to adopt a comprehensive AI solution right away. Begin with a specific tool that tackles a key pain point. As you gain experience and comfort with AI, you can explore integrating more advanced tools.

By ensuring you cover the basics of good cashflow management first, you will be able to introduce new digital solutions to gain valuable financial insights, automate time-consuming tasks, and ultimately improve cash flow – but it starts with covering the basics well, as AI will not solve your fundamental business problems.

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