In last week's episode of I Hate Numbers, we emphasized the critical nature of cash flow forecasting for businesses. Now, in Episode 217, we're shifting focus to share five essential cash flow management tips every small business owner needs to know.

Calculating Days Cash on Hand

To kick things off, it's crucial to determine the number of days cash on hand. Additionally, most of us monitor bank statements, but they don't always reveal upcoming expenses. Therefore, ideally, aim for 45 to 90 days of cash reserves to weather unforeseen expenses. Moreover, consider utilizing overdraft facilities as a buffer when needed.

Monitoring Payment Terms

Consequently, keeping an eye on payment terms with customers is paramount. Similarly, negotiating shorter terms or taking payments upfront can alleviate cash flow pressures. Furthermore, utilizing digital accounting systems like Xero streamlines credit control and ensures timely payments.

Managing Customer Concentration

Diversifying your customer base reduces the risk associated with customer concentration. Also, relying heavily on a few clients poses a threat to business stability. Therefore, ensure you spread your risk evenly to mitigate potential financial jeopardy.

Controlling Outflow

Nevertheless, maintaining good relationships with suppliers is essential. During cash flow challenges, negotiating extended terms can provide breathing room. However, open dialogue is crucial to avoid damaging supplier relationships.

Utilizing Cash Flow Monitoring Tools

Similarly, tools like Xero offer real-time insights into your financial health. Additionally, consider platforms like Budgetwizz for future planning and monitoring. Moreover, having a clear understanding of your cash flow allows for informed decision-making and proactive measures.

In essence, healthy cash flow and adequate reserves are the backbone of any business. Therefore, effective cash flow management not only ensures stability but also creates opportunities for growth. Join us in optimizing your cash flow management and tips to achieve financial peace of mind.Tune in to the I Hate Numbers podcast for more insightful discussions on financial management strategies tailored for small business owners.

In last week's episode, episode 216 of I Hate Numbers, we looked at why cash flow forecasting is crucial for your business. This week, I'm going to share five essential cash flow management tips that every small business owner needs to know. Let's crack on with the podcast.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Now, if you want to have the best chance at success as a small business owner, arts organisation, social enterprise, then it's imperative that you need to make sure you take good care of your finances. And this doesn't just mean keep an eye on the profit, even though that's important. You need to make it a priority to make sure you keep cash in the bank and have access to cash resources.

It's extremely difficult to grow your business when you're continually running out of funds. And in this podcast, I'm going to share five tips to help you manage your cash flow so you can continue operating smoothly and plot a roadmap for your steady growth. What's tip number one?

Well, tip number one is to make sure that you have calculated the number of days cash on hand. What do we actually mean by that? Now, most of us will keep an eye on our bank statements. We’ll look at the bank's balances and make a quick decision about what we can and can't afford. However, unbeknownst to us, the bank statement will not reveal expenses coming up directly.

And so we need to make sure: how long will that cash last us until it actually depletes and runs out? Now, the way we look at this is to assume no further income comes in, quite a depressing thought if you think about it, but how long will that cash last us if we have no more cash being generated coming in?

In an ideal universe, you should be aiming for about 45 to 90 days worth of cash reserves. You may look at your cash balances, do a quick calculation, and figure out you might only have a few days or a couple of weeks in hand. Those expenses will come out through the woodwork, and some of those expenses are known, but make sure you've got good cash reserves to buffer yourself through that storm.

And if not actual cash, make sure you've got that overdraft facility to step in when you need it to. What's tip number two? Tip number two: Keep an eye on your payment terms. And those are payment terms with your customers. Now, as a general rule, the larger the client is, then the more stress there will be, the more stringent the credit terms will be that will be offered to you, that you'll be negotiated.

Use that with a small end. So it's not unheard of to have 30, 60, even going up to 120-day payment terms. Now, what that means is you'll do the work, you'll deliver it, but you're going to be waiting for that money to come into your bank account. Meanwhile, you've got cash pressures that you're facing.

You've got to pay your suppliers. You've got to pay your freelancers. You’ve got to pay yourself. You've got to pay your ongoing costs here. And if you've got nothing coming in, that can be a real serious threat. Not just to your bank balance, but also to your future business viability. So consider negotiating those payment terms with your existing and your future customers at the outset, where you can take payments up front, take deposits.

You need to not only consider that, but you also need to keep an actual eye on how long customers are actually taking to pay their bills. Having a system like Xero, a digital accounting system, is a great way to keep an eye, monitor, and manage that credit control much more easily. Check out the show notes by the way, for link to an article, a guide we've got on digital accounting.

Now, in an ideal universe, you should not wait to have to get paid by customers and clients, but we don't live in that ideal world. So make sure you keep an eye out, send those timely reminders and those gentle, little nudges to make sure that money gets paid when it should do. What's tip number three? Tip number three is about customer concentration.

Now, I'm not talking about, you know, customers actually focusing on the job in hand. It's about how reliant are you for your business viability on the business of one, or two, or a very few clients. Does all your income come from a small proportion of your client base? It's not unheard of for businesses to have a very focused amount of business just in the hands of two or three clients.

Now, what that means is that gives you a good indicator, a good insight of your business stability. Now, there's nothing wrong with having good high-value clients, but it's the concentration we want to be careful of. They have the power, they have the negotiation. If they withdraw or go elsewhere, your business could be in financial jeopardy.

Now, think about this, a customer is delaying their payment to you for whatever reason. That's going to have a ripple effect and then you've got that tough decision to make about what's the action that you take with that customer. So where you can diversify your customer base. Don't be over-reliant on one or two customers.

Spread your risk as best you can. What's tip number four? Well, tip number four is about slowing your outflow. Now we're not talking about bodily functions here, but it's about your suppliers. Obviously, you want to be paid as soon as possible. You need to maintain good business relationships with your suppliers.

You require them to provide their services on time at a good quality. And the minimum bargain you have with them is to make sure you pay them on time. However, when you've got cashflow pressures, talk to your suppliers, agree some extension terms there. I have many clients who consciously like to pay their supplies as promptly as possible.

So even though they might have 30 days from their suppliers, they will pay them in a couple of days because it's more convenient for them. Now, there's nothing wrong with that attitude, but remember, when you pay earlier than you need to, that's cash leaving your business. That's cash that you might need for other purposes.

So when you can negotiate, have those conversations, and pay on time. What I would probably not recommend is when you've got cash flow problems, just automatically not paying your suppliers without entering that dialogue with them. If they withdraw their supply from you, then you could have a real major headache on your hands.

Tip number five is making sure that you've got something internally that you've got to actually keep an eye on the cash flow. Now, tools, platforms like Xero are excellent tools for monitoring what's actually going on, keeping your records up to date, seeing where you are. You need to also have an insight into the future and tools like spreadsheets.

Spreadsheets are okay. Spreadsheets are fine. They have their purposes. I prefer something more robust, and I would recommend you check out and have a look at our online planning tool, Budgetwhizz. Having an idea of what's going on at the moment, what the future looks like, and monitoring that cash flow is a real vital tip.

Think of it like the dashboard in your car that tells you what the financial weather is looking like, and you can take action accordingly. If it's sunny, you can wear looser clothing. If it's raining and it's thunderstorming, you batten down the hatches. It's the same in your business. If cash flow is healthy, then, you know, that gives you room to indulge, to spend, to invest, reward yourself better.

If it's tight, then you can take corrective action. Now, in summary, in essence, folks, healthy cash flow and an ample reserve of cash is the backbone of any business. It gives you stability, gives you security, as well as giving you the opportunities for growth. And more importantly, good cash flow management

gives you peace of mind and reduces that financial stress. The last thing you want to do is to have that financial stress that you take with yourself in the evening and wake up with it the next day. Folks, I hope you found this podcast useful. Let me know what your thoughts are. Do you have a cash buffer?

Do you keep an eye on your customers, your credit control? Do you have customer concentration? If you feel there’s others in your circle that could benefit from listening to this podcast, I'd love it if you could share it with them. Until next week, folks, happy cash-loving. We hope you enjoyed this episode and appreciate you taking the time to listen to the show.

We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.