How To Manage Cash Flow For Your Business
Running a business is exciting, challenging, and at most times, rewarding. We are great in our area of expertise but sometimes we drop the ball on important areas of our business. Cash flow is one of those areas. Cash flow is the movement of money (inflows and outflows). The goal is to have positive cash at the end of each cash cycle (typically at the end of each month). According to the 2019 Quickbooks State of Cash Flow report, six in 10 small businesses struggle with cash flow regularly. Whether you’re a small business or a large one, cash flows must be monitored to ensure your business doesn’t suffer any sudden blows.
Having enough liquidity in your business is essential to ensure you can meet your liabilities. If you feel you’re having trouble maintaining your cash flow, it’s time that you work on it. Here are 3 S.M.A.R.T money moves you can add to your business today to better manage your cash flow.
1. Plan your financial goals
The initial step, planning, is the most important. You must create a money plan that spells out your vision, goals, and a specific action plan to help reach your goals. This plan essentially creates a budget you should follow with hopes of creating positive cash flow. While the possibility of achieving the exact budgeted figures is low, you’ll still be able to follow in line with the strategy that will be profitable for your business. Keep an account of all your inflows and outflows.
Commit to consistent monitoring of all inflows and outflows. To achieve this, you’ll need to record every transaction and ensure you’re following the right accounting practices. Monitoring your cash flow allows you to quickly analyze which areas of improvement and overspend. Keep a close eye on your total expenses, your revenues, and everything in between.
2. Reduce unnecessary costs
Cash and profit are NOT the same. You can have one and not the other. Overspend in areas such as labor or office expenses directly impacts your profitability. The goal in business is to build a profitable business and have excess cash on hand.
To ensure you’re not left at a disadvantage, focus on reducing all irrelevant expenses that your business incurs. Try not to take out cash for personal expenses and keep separate accounts of what you spend personally. Do not co-mingle personal and business funds!
3. Cash in your assets and extend liabilities
Review your payment policies. If you offer high ticket items, require a 25% - 50% deposit upfront. This strategy increases both cash and income immediately. You can also delay or extend payments to vendors and suppliers. This will help you keep cash within the business for a while rather than paying out quickly and also establish payment history between you and vendors. This will be to your advantage in the near future as you are building business credit.
How can CFO For Women help you manage cash flow?
These are strategies we help business owners implement every day. Are you ready to take your cash flow to the next level but need a little more guidance? Our book, “Chasing Papers” walks you through a step-by-step process for implementing good financial habits that directly improves your cash flow management. Grab your copy here:
Remember, every dollar counts.