Cashflow is the lifeblood of any business and key for financial sustainability. With the end of this calendar year approaching, business owners should start planning now for ways to improve cashflow in 2024.
Whether your cashflow is in the negative, meaning more money is going out the back door then coming in the front door, or you want to maximise growth, here are four effective strategies for improving cashflow next year.
1. Create a forecast and budget
Start the process by creating a detailed budget for 2024. Detail your monthly and quarterly expenses and identify areas where you can trim costs. This might be cancelling unnecessary subscriptions, consolidating insurance or reducing the amount of overtime your staff work.
In 2024, your budget will work best when it is kept live and up-to-date. It should reflect the exact movements of money in and out of your accounts, month-by-month.
To help plan your budget, it will be necessary to forecast next year’s income. To do this, consider factors such as 2023’s profit and loss statement, price increases and external factors of interest rates and taxes.
Plan for different outcomes, including a best and worst case scenario of revenue. You can consider running “what if” scenarios, to help paint the picture of how your business will cope with changing external factors.
2. Encourage timely customer payments
Key to managing cashflow is ensuring all invoices are paid on time. Collecting payments quickly will help keep your cashflow healthy and reduce your stress.
Some tips for collecting payment include:
If you haven’t already, invest in a digital system to create and send invoices
Write clear payment terms and instructions and draw your customers’ attention to them
Chase outstanding payments; don’t allow bad payment habits to form
Consider offering incentives like discounts or vouchers for early payments
Request a deposit for large orders
Have a strategy in place to resolve payment disputes quickly
3. Manage stock and suppliers
Unsold stock means less money in the bank and less shelf-space for faster-moving, more profitable goods. Forecasting your customers’ needs and buying enough stock to cover that without much surplus frees up cash.
Consider an inventory management system that automates your orders and reduces the time between placing and receiving orders.
You can try negotiating a better price with your suppliers. This will help relieve the financial burden of ordering large quantities at once. Also, make sure your suppliers are reliable – if they are slow or their quality is lacking, consider finding new suppliers as this will start impacting your business as well.
4. Speak to a professional
Start planning for 2024 today by setting up an appointment with your accountant. A good accountant will be able to identify areas for concern and provide tailored advice on how to improve your cashflow.
Here are some questions to ask your accountant now to plan for 2024:
- Can I restructure my debt to relieve monthly burdens?
- Where can I optimise my tax strategies to free up capital?
- Can you recommend financial software or systems that can streamline my invoicing, payment collection and expense tracking?
- Where am I most at risk financially and how can I reduce this?
- How can I extract more value from my existing assets?
- What possible external economic factors or changes in 2024 should I be preparing for?
Remember that while seeking professional advice does cost you money, the potential benefits of improved cashflow, reduced stress and better overall financial health will generally outweigh the expenses involved. It is a strategic investment you can make now to create a more robust and stable foundation for your business in 2024 and beyond.