If you are trying to run a small business without looking at or managing your cash flow, then it can be like trying to shovel your driveway when it is still snowing. Even if you get to do it all, it is going to be a lot of hard work and a lot of wasted time. Cash flow is important for all businesses, but for small businesses that are just starting out, it is something that is really critical. If you can’t manage your cash flow well, then it can be hard to keep the business afloat, as that is what you need to keep things going.
When thinking about cash flow for your business, there are a few key elements to be thinking about. These include:
- Accounts receivable: the money that customers and clients owe to you.
- Accounts payable: the money that you owe your suppliers and others, like insurers.
- Shortfalls: this is something that you want to aim to not have, but they can and do happen.
In order to effectively manage all three of these elements then you need to navigate your business to be a success. Your business is going to be much healthier when you are looking closely at the cash flow and can help steer it towards profit. So here are a few tips to help you to manage cash flow much more successfully:
Break Even Point
You need to know at what point your business is going to start to become profitable. This is not only because it will impact your cash flow, but because it helps you to have something to work towards. If you’ve not worked out how much more your income needs to be compared to your outgoings, then you won’t know where to start with business. Negative cash flow and having negative profits can make for a pretty grim combination. So instead, focus your efforts on being better at managing your cash flow, and having a focus on what that number needs to be for profit.
Encourage Customers to Pay up Faster
When customers pay late, then it can be really difficult for you to then pay people on time. So you need to look for ways to get your customers to pay faster, before you start to look at a collection agency for help. You could offer your customers a discount, for example, if they pay by a certain date in the month. Just make sure that whatever you choose, you enforce the standards rigidly. If you’ve said that you will charge late fees, then make sure that you charge late fees.
Use Technology to Your Advantage
It is such a good idea to have a spreadsheet of cash flow, as that will be helpful on a daily basis, as well as for when tax return time comes around. But use some accounting software and it can really make a difference. Also, make sure that you keep your files as secure as possible, as it will help keep things protected.
At the end of the day, as long as your cash flow stays in the positive, your business can survive turbulent times much more easily.
