Cash flow is the lifeline of your business. This is even truer if you are a newly launched venture that is still struggling to break even or pay the suppliers on time. Conversely, messing up your cash flows is the shortest route to business doom.
You can ensure healthy cash flow management by delegating this critical business function to a reputed professional services firm. Dubai has many successful accountancy firms that can take up the responsibility of handling your cash flows perfectly well.
What exactly is cash flow management?
Cash flow management is a set of practices to help your business financials always stay in the “green” or, in other words, always stay cash surplus.
A cash crunch can be one of the biggest business destroyers. Cash surplus is necessary to keep your business afloat and is even more important to bring your expansion plans to fruition.
Here are a few industry best practices for maintaining healthy cash flows:
1. Have accurate information about the “Break Even” point
Cash flow management, in theory, is very simple. All you need to make sure is that the amount of cash flowing out is always less than the amount of cash coming in.
Things, though, are never so easy. The first thing you need to watch out for is your “break-even point”. Going into the “red” under this point month after month is not going to cut it out for your new business. Your first target is to hit the break-even point in the first few months after launch.
2. Hedge your bets with an Emergency Reserve
A cash reserve is always a prudent strategy to execute. Economic environments are volatile, and you never know when your business gets caught up in a bad “bear” run. The emergency reserve will help you get through these barren months when you seem not to close any new sale at all. A decent emergency cash reserve should have enough to last your business at least six months of its regular expenses.
3. Cut down on Non-Paying Clients and Delayed Payments
What is worse than not closing a sale? It is to close a sale, work the nights on weekends to deliver the product or service, and then find yourself staring at a blank wall as the client is not paying or, even worse, is not reachable in any manner.
Always set out in writing clearly your payment terms before you take on the engagement. Set clear time schedules for payments. Make sure you inform your clients of additional late-payment charges beforehand and follow through with them in case the client delays payment.
A good tip here is to do basic research on your client before committing yourself. If possible, always draft a contract document for every project.
4. Reward Early Payments
Complimentary to the above point, you must also reward those clients who pay in advance or earlier than the due date. A small early-bird discount would be good to encourage repeating such behaviour.
5. Cash Flow Trumps Profit
You might be tempted to run your business with a single-minded focus on profit and margins, but the truth is that you should always give priority to cash flow. Financial prudence is one of the bedrocks of sound accounting, and you should always make sure you do not flout this time-tested principle.
Cash flow management is a delicate task that is both an art and a science. Instead of doing it all by yourself, you are much better offloading this crucial business function to a reputed accounting firm. Their expert consultants will manage your cash flows smoothly and save you a lot of effort and time in the process. Dubai is home to many top-notch accounting consultancies. If you are a new business in Dubai, make sure to hire a good external firm and enjoy being always in the “green”.