It is a well known and documented fact that nearly half of all new company formations fail within the first two years. This can attributed to a number of factors; declining market conditions, increasing market saturation or a poor sales and marketing strategy. However, in many cases it is simply the result of bad financial planning. In this post, we consider the impact of poor cash flow management and how a proactive, rather than reactive, financial strategy could save your business.
At the start of the company formation process, many people get caught up in the enthusiasm of product development and allocate an insufficient amount of time to how the cashflow of their business will practically run. For many businesses, this is a fatal mistake to make – late payment compounded by spiralling bills, can result in closure and, in many cases, bankruptcy.
Late payment, stunts growth and erodes profit. Minimising the amount of money your company is owed, allows you to put finance back into your business and ultimately secure your financial future. Therefore, granting a customer, or business, credit should only be done once their situation has been diligently reviewed and the risk of potential non-payment assessed and established
There are many Government funded training schemes available that will teach you the practical skills of financial procedure. Cashflow management is key to your business’ success; therefore, before you even begin trading, a robust strategy should be put in place. Credit control is key;
-Develop a clear payment system and communicate the importance of its execution to all key members of your team.
-Establish definitive credit and payment terms.
-Communicate your payment terms prior to every sale and ensure the buyer understands them fully.
-Establish a clear strategy for chasing late payment.
-For the first moment of company formation, make invoicing and keeping on top of paperwork your top priority.
-As a point of best practice, aim run a company credit report on any company you do business with.
In many cases a business’ failure could have been prevented by careful and considered cashflow management. Ensure you establish it as a top priority from the moment of incorporation.