A business can only survive in the long run if the money it gets in is greater than the money it pays out. Businesses need to make profits to stay in business but many businesses can cope with short periods during which their expenses are greater than their income. No business can survive without cash.
Businesses should focus on four key areas to ensure that they have enough money to meet their current and future needs: debtors; suppliers; stocks; and costs.
- encourage payments up-front by accepting cards or offering discounts
- set credit limits
- use internet banking to monitor payments into your account
- shop around for suppliers
- check supplier terms and conditions thoroughly e.g. return policy, credit terms
- use electronic payments such as electronic funds transfers and internet banking rather than cheques
- measure and track the cost of carrying stock e.g. insurance and premises;
- track supplies, production and sales to maintain the right amount of stock
- sell off slow-moving or outdated stock
- identify the key costs within the business
- implement an action plan to reduce business costs
- identify large, once-off costs and spread them over the year