A healthy cash flow is essential to the survival of your small business. It’s like food; without it, your business will starve. You need cash to be able to fund your operations, so it’s crucial to keep a close eye on how much money is flowing in and out of your business. Smaller and younger businesses in particular need to be mindful of cash flow so as not to damage relationships and accumulate debt. Here are some easy tips to help you better manage cash flow in your small business to ensure survival and growth.
1. Create Cash Flow Statements
In order to improve your cash flow management you first must improve your understanding of your current situation. Preparing a cash flow statement will provide you with an accurate picture of how and when money is coming in and out of your business, and thus allow you to manage your accounts accordingly.
Additionally, cash flow statements will help you to understand how much you need to earn to break even. This will allow you to measure your performance, track growth and address any issues before they begin to seriously threaten your business.
It’s a good idea to create a calendar of your monthly earnings and expenses. You need to understand when your payments are due so that you can ensure you have sufficient funds available, and avoid overspending. Furthermore, this will allow you to time your payroll strategically so that you pay staff when your accounts are most likely to be full.
2. Stay on Top of Invoices
Late payments from customers and clients can cause significant cash flow problems for a small business. However, staying on top of your invoices is a simple, common-sense way to manage this issue.
When signing a new client, communicate your payment terms clearly and ensure that all invoicing details are correct. It’s easy to get swept up in the excitement of a new project and forget about the practical side, but this can lead to payment delays later on.
It’s important to make sure that your invoices are accurate to avoid wasting time fixing mistakes. Be sure to send them in a timely manner, otherwise it’s difficult for clients to pay on time.
Finally, keep an eye on payment deadlines and send polite reminders when necessary. Don’t be afraid to chase up late payments, and take a firm but fair approach.
3. Choose your Payment Terms Wisely
By being smart about payment terms, you can ensure your customers pay quickly. Adding a late payment fee is a very effective way to encourage timely repayment, but be sure that your customers understand this from the very beginning and give them a reasonable window.
It’s also worth negotiating upfront payment or arranging a deposit. This boosts your bank balance quickly and will help to cover the costs incurred along the way.
4. Get a Business Credit Card
A business credit card can be very helpful in managing cash flow and smoothing over any bumps in the road. It’s always wise to have a good credit reserve and if you can pay off your balance promptly you won’t incur any interest, either. It’s a fantastic solution for short-term cash flow issues but it’s crucial that you manage your card well and don’t allow debt to rack up.
5. Invest in an Accountant
Taking good care of your cash flow can be a full time job, but as a business owner there are other important tasks that require your attention, too. It’s wise to outsource your cash flow management to a trusted accountant who can keep on top of the situation and identify areas where you may be able to make significant savings, or help the cash flow more smoothly. In business, cash flow is just as important as profit, so it pays to have a qualified and experienced accountant by your side to manage your money.
Cash is King
Recognising the importance of cash flow management is the first step to improving it. It’s vital that you prioritise good cash flow management and invest in the tools, systems and professional help required to keep your business afloat. After all, a healthy cash flow makes for a healthy business.