Selling is great... But getting paid is even better! Once you send out your sales invoice, you become a creditor. However, until that receivable is paid, your cash flow needs may continue to grow.
While payment terms do allow buyers to settle their debts several days after receiving the goods or having the service performed, once those terms have expired, you must ensure that the money comes into your accounts. This cash flow will be essential for financing your operating cycle, one-time expenses, and investments.
To maximize your chances of successful debt collection, we encourage you to:
It is essential to pay your bills on time to maintain strong business relationships with your suppliers and avoid certain costs (late fees, surcharges, and interest). On the other hand, by paying your bills within the payment terms granted to you, you optimize your cash flow. In fact, as long as you haven’t paid, you can use that cash flow to finance your day-to-day operations. This is an excellent way to create leverage:
By balancing the profit generated by your business with the optimization of your working capital needs, you can manage your business in the most effective way possible.
To ensure you pay your suppliers on time, schedule your payments in advance using your banking app or supplier payment software like Libeo. Note that if your working capital allows it, you can try to negotiate discounts by offering to pay some of your invoices in advance. This is a great way to use your cash flow to improve your margins.
Many business leaders want to improve their company’s financial management. But how many actually implement a regular and rigorous cash flow monitoring system? Today, cash flow management solutions like Fygr make it easy to track your cash flow anytime, anywhere. This is the first step toward understanding where you stand. Next, you need to make it a habit. We don’t recommend checking your company’s accounts multiple times a day. Instead, we suggest setting aside at least one moment each week to monitor your cash flow:
This simple habit is the first step toward sound and effective financial management—management that supports your business and gives you peace of mind.
Tracking your cash flow is also key to optimizing cash management, for example through a holding company. See also our article on the specific case of real estate investment companies (SCIs).
There are two types of expenses: capital expenditures (CAPEX) and operating expenses (OPEX). Your capital expenditures are typically financed by your equity and debt. Operating expenses, on the other hand, are financed with cash flow. These are the expenses you need to monitor closely to reduce your cash outflows. To do this, you need to categorize each expense and regularly ask yourself the following questions:
The answers to these questions will help you take steps to reduce or control certain expenses.
Another concept you should be familiar with is the distinction between fixed costs and variable costs. It’s very simple:
Categorize each of your expenses to identify your variable and fixed costs. This is very useful. On the one hand, it allows you to monitor whether your variable costs are rising faster than your sales (the “cost-price squeeze”). On the other hand, it enables you to calculate your break-even point: the amount of revenue needed to turn a profit.
The higher your fixed costs, the higher your break-even point will be. So, if you reduce your fixed costs, the amount of revenue needed to generate a profit will be lower. This highlights one key point: the more flexible your cost structure is (i.e., the lower your fixed costs), the better your business will be able to adapt to fluctuations in activity. And your finances will be less vulnerable. So keep a close eye on your various cost categories and your break-even point.
💡 Note that the break-even point can also be calculated in terms of days of revenue. This metric is called the break-even point. It indicates the day of the year when the company becomes profitable.
Let's take an example:
Annual revenue: €1,000,000
Fixed costs (FC): €250,000
Variable expenses (VE): 35% of revenue (i.e., €350,000)
Margin on CV (MCV) = 1,000,000 - 350,000 = €650,000
MCV rate = 650,000 / 1,000,000 = 65%
Break-even point = CF / MCV ratio = 250,000 / 0.65 = €384,615
SR = (Cash Flow / Accounts Receivable Turnover Ratio) / (Annual Revenue / 360 days)
SR = (250,000 / 0.65) / (1,000,000 / 360) = 138 days
The business becomes profitable after 138 days of operation.
Although forecasting is one of the key factors in financial management (we’ll discuss this shortly), unforeseen events can impact your cash flow. Examples include an unexpected non-payment by a customer, a crisis, a breakdown, and so on. You can’t predict these events, but you can familiarize yourself in advance with the best practices to follow “just in case”:
These various steps require a high degree of adaptability. Be sure to keep a tight rein on your expenses, maintain sufficient cash flow and financial independence, and avoid over-concentrating your business on specific sectors, products, services, or customers.
To protect your business and optimize your financial management, creating a cash flow plan is the best course of action. Without a forecast, you cannot predict your company’s cash flows and bank balances in advance. That’s like “driving blind.”
Creating a cash flow plan can be daunting: consolidating bank data, adding your current purchases and sales, making forecasts, and regularly updating your spreadsheets… But today, there are ready-made solutions for this (we’ll get back to that in a moment). Also, to make decisions based on financial implications, you need to develop several scenarios.
Example:
Your cash flow plan then becomes a management tool, ideal for making informed decisions, planning, and anticipating future needs.
Did you know that Fygr is the first solution capable of automatically generating cash flow projections using an intelligent tool? All your bank accounts are consolidated on a single platform, allowing you to monitor your cash flow and avoid overdrafts. You define categories specific to your business and easily view your expense categories (which helps you eliminate costs you deem unnecessary). Our algorithms automatically generate a customizable cash flow forecast. You can then create scenarios and manage your business with confidence. Let Fygr work for you, take back control of your cash flow, and put an end to manual calculations.
No matter how many best practices you implement, your business will always have occasional cash flow needs (unless it has significant cash surpluses). The main reasons are:
These events do not call into question the profitability of your business model. However, they do require short-term financing. To optimize your cash flow, you need to choose the financing option that best suits your situation.
The main ones are:
To choose the right financing option, we recommend that you consult with your banker or your financial advisor.
Your banker is a business partner. They support you through every stage of your company’s growth. It is essential to keep them regularly updated on your company’s operational developments, as this will help them better understand your financing needs when they arise. Additionally, by maintaining close contact with your advisor, you’ll be more likely to be notified and informed about the financing—and even insurance—options available to your company.
One of the best pieces of advice we can give you is this: surround yourself with advisors who are experts in their fields, involve them in your project as often as possible, and draw on their expertise whenever you can.
Cash management isn't easy and takes time to:
However, between your core business and growing your company, you may not have all the resources you need to optimize your financial management. Fortunately for you, you can surround yourself with experts who can help you make the right decisions: a certified public accountant, an outsourced CFO, a financial advisor, a banker, and so on. As we saw just now, knowing how to rely on the right people is one of the key factors in an entrepreneur’s success. So, seize this opportunity and continue to grow your business with peace of mind.
You now have our 9 best tips for optimizing your company’s cash flow management. Take the time to implement these best practices and stick with them over the long term. Your efforts will be rewarded with improved financial performance. Also keep in mind that rigorous and consistent financial management will give you greater clarity and peace of mind on a daily basis, allowing you to grow your business under the right conditions.
Discover how Fygr can transform your cash management with a free trial. During this limited 7-day period, take advantage of a new way to manage your company's finances:
Take back control of your finances and boost your growth today!