An essential component of operating a successful business is learning how to manage your cash flow efficiently. Without an adequate amount of money in the bank, expenses can’t be paid and business can’t move forward – a common reason for many businesses going bust!
What is cash flow?
Cash flow is essentially the movement of money coming in and out of a business. If you’re spending more than you’re bringing in, you have a negative cash flow. Conversely, taking in more money than you’re spending generates a positive cash flow. Evidently, every business owner strives for the latter.
How can you better manage your cash flow?
#1 Plan, Predict & Set Targets
A successful business is a business with a future. Many businesses that fail are still profitable, they just don’t have the cash to carry on. It’s important to ask yourself, where do you want to be this time next week, month, or year? Then ask yourself, where will you realistically be with your current cash flow, and how can you make changes to reach your target? By maintaining a cash flow forecast, you can better understand recurring trends and probabilities to set realistic targets.
#2 Continually Measure
How will you know if what you’re doing is working if you don’t measure your progress? If you’re not seeing improvements in your cash flow, or if it’s resulting in a negative cash flow, it can be harder to determine where you’re going wrong if you haven’t kept a record. Measuring your cash flow will allow you to monitor the timeliness of your payments, therefore you can budget for upcoming cash shortages or bills. Without measuring cash performance, you cannot manage your finances efficiently.
#3 Maintain Cash Reserves
A majority of businesses experience quiet periods, so business owners need to prepare for these times. This should come easily if you have practiced the first tip – planning. Having saved money in the bank acts as a back-up, just like your personal savings would (don’t tell me you’ve never dipped into them, I won’t believe you). And sometimes, no matter how organized you are, the excepted happens; an employee leaves or you lose your biggest client. You will be thankful you have maintained cash reserves if you find yourself in an unanticipated situation.
#4 Cut Costs
It’s easy to sign up to one too many online subscriptions that you never use. Remember every penny counts, so be ruthless and cut costs where you’re wasting money. That, or assign an employee to use and take advantage of the resources you are paying for to ensure your business reaps the benefits of them.
#5 Don’t Solely Focus on Profit
Making sales and having money in the bank are two very different things. Cash flow is needed first to generate profits, and while profit is important, if you’re ignoring your cash flow you could find yourself in financial trouble. Every business needs cash to operate successfully, so if you’re making a profit but you have no cash handy to pay your expenses, it’s time to reassess your cash flow and identify where you’re going wrong.
#6 Invoice Quickly
Implementing an efficient billing system will save you a lot of time and financial drama. Ensure your invoices are sent out in a timely manner to avoid receiving late client payments. If you have a bill to pay today but you can’t afford it because a client payment is late, your cash flow needs working on. It’s time to make efficient invoicing a priority.
#7 Enable Easy Payment
Prompt invoicing is one way to speed up a payment process, however, if your billing system is inconvenient, you’re not likely to see that payment in your bank account anytime soon. By ensuring you have an easy and convenient payment process for your clients, you will minimise mistakes, avoid having to chase up clients for bills and potentially improve your cash flow. Don’t let clients put you in the ‘too hard’ category.
Need some assistance with managing your cash flow? Try out our FREE Forecast Tool today!