When you manage your small business without a cash flow understanding and forecast, it will feel like you are on the right path but not for long. You might not see those dangerous hidden cash flow issues that come creeping on you when least expected.So, do you want to make sure that you are always on the right path? Understanding the ins and outs of cash flow management will help you get there.
What is Cash Flow and why is it important?
Cash flow is the cash coming in and coming out of your business account(s). When cash comes in, it is a cash inflow. When cash comes out, it is a cash outflow. Positive cash is when the cash inflow is more than the cash outflow. Negative cash is when the cash outflow is more than the cash inflow. The target should be to stay in the positive cash.
Negative cash will lead to going out of business in no time. This is because employees who get the job done, need to be paid. Suppliers who provide the products need to be paid. If you’re renting your business location, then the landlord needs to be paid.
While increasing sales targets and acquiring new customers are all great, unless they translate to cash ready to spend, they are still theory.
Here are some tips to increase positive cash flow:
Make sure you send out your invoices early and regularly.
Clients do not pay unless they are invoiced. Make sure to send those out as early as possible. Depending on the accounting platform you are currently using, you can automate recurring invoices, so you do not have to worry about sending them.
Be smart with spending.
Ask yourself, is what am about to pay necessary for my business? Am I using the most efficient service provider when it comes to prices? Can I lease instead of buying? Use the payment terms to the fullest and check if there are discounts for paying suppliers early.
Build a Cash Reserve
Look at your past cash movements and arrive at an estimate that can cover your business expenses for a set period. This can be three months, six months, or a year. This reserve will help you be ready for non-forecasted events and expenses.
If you have any questions or if you need help to get your cash flow in order, contact us to schedule a free 30-minutes consultation session to discuss your needs.
