While the outlook for early-stage businesses remains a challenge, entrepreneurs thinking about starting their own business should not be perturbed. With a cohesive business plan, the will to succeed and the right financial support in place, a small business can still achieve success and bring immense satisfaction to owners and managers who have decided to take the plunge and make their business dreams a reality.

The simple principal to keep in mind in any business decision making processes is that cash is king. Fortunately, there are many ways to maintain a healthy cash flow and generate more funds.

Getting your working capital

There are several ways to generate more cash. The first is to try to make more money yourself, by increasing margins. In this way, you can increase profits without increasing your workload. As for many start up businesses, if increasing your margins is not a feasible option, it may be time to consider appropriate external funding.

If you have a short-term need for additional cash, a bank overdraft may be your best bet. An overdraft is quick to arrange and relatively cheap, but there will be an upper limit you cannot exceed without the permission of the bank manager. However, the drawback of the overdraft is that the bank can demand instant repayment.

Longer-term requirements can be financed by bank loans. Loan terms vary from bank to bank. You can borrow money for periods of between two and 30 years and the rate of interest can be fixed, variable or at a monthly managed rate. You may be able to negotiate the repayment terms and the interest rates to suit yourself.

If your cash flow is suffering whilst you wait for your customers to pay their invoices, or you are forced to offer extended credit terms to your larger, more powerful customers, it may be appropriate to approach an invoice finance specialist. Invoice Finance offers you a flexible source of finance by allowing you to unlock the funds tied up in unpaid invoices – leading to an immediate injection of cash.

On receipt of an invoice from a client, a invoice financier will pay up to 80% of its value within 24 hours. The financier then carries out the credit control on each invoice, on behalf of their client, sending out statements and chasing the debt until it is paid. Finally, the balance, less a service charge, is handed over to the client once payment is received. Invoice discounting is a similar service, except you retain the responsibility for credit control.

The cash flow released from factoring can be used to settle supplier's bills more quickly, enabling them to benefit from early payment discounts. Moreover, the money advanced to you by the factor is based on your sales; therefore the cash available to you will increase as your business increases.

Finally, if your business requires a heavy investment in plant or equipment, you may consider leasing or asset finance. This way, you can spread the cost of paying for a major purchase over the working life of the equipment and keep valuable cash free for use elsewhere.

Keeping your cash flowing

Poor cash flow is one of the main reasons for business failures. Without cash it is impossible to purchase raw materials and new equipment and – at the simplest level – pay staff wages. But what happens when the money isn't flowing and what can be done to avoid a cash flow blockage?

• Check it out – always conduct a credit check against your customers. Set your customers realistic credit limits. Only trade with companies that you know are not only credit worthy, but also have a good track record of paying their bills.
• Crystal clear – set out your terms and conditions and tell your customers. If your business terms are seven days or 30 days, make it clear. Set out your terms of trade early on. Include them with order confirmations, invoices and other documentation.
• Get the admin right – always check your invoices. Avoid invoices being returned by addressing them to the proper department and a named individual if possible, including details of the job, a purchase order number, the correct amount, your business terms and a date.
• Invoice today – don't put it off. Issue invoices immediately on completion of the job and follow it up with a phone call to check if they've received it and that all details are correct.
• Keep your eye on the ball. Are your customers acting differently? Are they hard to get hold of? Are they sending you post-dated cheques? This can often be a sure sign that something is happening. Remember, forewarned is forearmed.
• Credit control. Don't be afraid to adopt a follow up system. Issue statements and reminder invoices. Call your customers if their payments are late.
• Taking stock. Always manage your stock levels, plan ahead and don't hold too much stock. Holding stock costs you money. It may be possible to arrange more frequent deliveries from your suppliers so that stock levels can be kept to a minimum.
• Supply chain. Manage your suppliers. You could be getting a better deal if you shop around and negotiate longer credit terms and volume discounts, giving you more spare cash to reinvest in your business.
• Communicate – remember to keep everyone – your bank, suppliers and customers – up to date. If you tackle issues early on they don't develop into business problems later.

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