In today’s economic climate, managing cashflow is as crucial as ever for the success of any business. Having enough money on hand just to cover expenses, let alone pay yourself, seize opportunities and weather unexpected challenges is a struggle for most small business owners! So, it’s essential to have a solid plan in place.
Mindset Matters: How Mindset Affects Spending
Believe it or not but one of the most effective things you can do to improve your cashflow is make a conscious effort to shift the way you think about money, spending and even tax. Why? Because any improvements made to cashflow based on traditional means are likely to be short lived if you have underlying emotions and beliefs that continually undo all the hard work you’ve put in. So, it’s important to address both the emotional and financial aspects.
- Think about your attitude when it comes to money: Do you think profit and tax are bad? Do you suffer from imposter syndrome or get feelings of unworthiness? Are you often in survival mode? If you answered yes to any of these questions, then you could be setting yourself up for failure and changing the way you think is the first step in improving cashflow. For example, instead of feeling bad about paying tax or seeing it as a negative, you could choose to equate tax with success - if your business wasn’t profitable there would be no tax to pay.
- Focus on what you do have rather than what you don’t: Many who struggle with spending are never happy with what they have and will use up every resource as fast as they can to acquire more unnecessary items, whether it be business or personal. By focusing on gratitude and abundance and recognising what you already have this can often help curb the urge to overspend.
- Don’t put your business before yourself: Often small business owners think they need to work themselves to the bone and put themselves last to make the business a success. The reality is that putting funds aside for yourself and ensuring that you put systems in place so that you can take breaks and time for your self is essential.
- Charge what your worth: The prices you charge directly affect profit margins and you simply can’t have a positive cashflow when your profits are negative. So, if you’re having trouble with cashflow it might be time to reassess your pricing strategy.
Other Tips
Now that we’ve got you thinking about mindset, here are some practical financial tips to help improve cashflow for your business:
Create a Cashflow Forecast:
Start by creating a cashflow forecast that outlines your expected income and expenses for the coming months. This will help you anticipate when money will come in and when it will go out. Having a clear picture is a valuable tool for planning and identifying potential cash shortages.
Implement Efficient Invoicing Practices:
Make sure you invoice promptly and follow up on overdue payments. Late payments can disrupt your cashflow, so establish a system for invoicing and use accounting software, such as Xero, to track payments.
Negotiate with Suppliers:
Don’t be afraid to negotiate with your suppliers for better payment terms or discounts. Building strong relationships with suppliers can lead to favourable terms that ease the pressure on your cashflow.
Reduce Unnecessary Expenses:
Regularly review your expenses and identify areas where you can cut costs. This might involve renegotiating contracts, eliminating underperforming products or services, or finding more cost-effective suppliers.
Monitor and Manage Inventory:
Having excess inventory ties up your cash in unsold goods. Analyse your sales trends and adjust your inventory orders accordingly to maintain optimal inventory levels and free up cash that can be used in other critical areas of your business.
Build an Emergency Fund:
Set aside a portion of your profits to create an emergency fund. Having a financial cushion can help you navigate unexpected expenses without compromising your cashflow.
Diversifying Income Streams:
Explore opportunities to diversify your income streams. This can provide a buffer during hard times and reduce your reliance on a single source of revenue.
Stay Adaptable:
Finally, be prepared to adapt your financial strategy as circumstances change. Business environments can be unpredictable, so staying flexible is essential for long-term success.
While improving cashflow for your business requires careful planning and discipline, your mindset can greatly influence how you approach these challenges. Getting to the root cause of your spending decisions and putting concrete plans in place to overcome any negative thinking habits around money, will put you on the right track to combat recurring cashflow problems.
Needing more personalised advice? Feel free to get in touch.
