When it comes to a success of a business, it is often said that cash is king… whether your business is struggling or growing, cash flow management is essential for the survival of a company. You may have a great idea to serve your customers or to fill a niche, but if you do not pay attention to the details of the business, like cash flow you might create a heap of problems for yourself.
But it is not an easy job to keep track of the financial health of your business. Running a small business successfully necessitates rolling up your sleeves and devoting time to more mundane, day-to-day matters. It can be one of the toughest tasks, especially when you are just starting cash management.
Today, we'll take a look under the hood at one of the most important business details: cash flow management strategy. Knowing how much cash is coming in and going out, as well as accurately forecasting sales and expenses, is critical to the health of your company, especially for early startups.
Let’s dig in…
Cash flow management is not an easy nut to crack… and when it comes to sending invoices to the client there should be any delay. There may be other roadblocks and delays that you cannot control; don't add to them by delaying the distribution of your invoices.
The longer you wait to send invoices, the longer it will take for money to arrive in your business account. We know it sounds obvious, but you'd be surprised how many people overlook it! take time out of your busy schedule and send invoices in order to receive payment as soon as possible.
Spread out your outgoings and extend liabilities as much as possible. Do not pay all your bills at once as this can deplete your funds and potentially jeopardize your relationships with providers. Instead, go through your bills, sort them by urgency, and stagger disbursement dates so that the most important bills are paid first. More flexible and less important payments can be done later.
When it comes to cash flow management, it is pretty important to keep track of all your money matters. It is impossible to have a good understanding of your company's cash flow situation unless detailed financial records are kept for you to refer to. A profit and loss statement, for example, isn’t sufficient.
You must constantly be aware of how many invoices are being processed, how much money has already been allocated to important projects, and which bills must be paid soon. Understanding this information is crucial for successfully implementing your cash flow management strategy.
Payroll should be organized to work with your revenue stream and adhere to wage and hour regulations. Restaurants and retail establishments can more easily generate the cash necessary for weekly payroll due to their daily revenue streams. But because cash doesn't come in as frequently for companies with slower revenue streams, like manufacturers or wholesalers, this can be a problem.
Holding the cash to be paid less frequently than weekly, such as biweekly or monthly, may be advantageous if you're allowed to do so by the relevant wage and hour law. For information on any requirements for payroll frequency, contact your state's labor department.
While doing the cash flow management, make sure to set aside some money each month, even if the business is booming. It will serve as a sort of backup plan in the event of foreseeable cash flow problems. Since no business owner can predict every eventuality, it is always wise to have an emergency fund on hand to pay bills as they arise.
Calculate your typical monthly expenses and set aside about three months' worth of expenses. If there are any cash flow issues, this should cover them for as long as it takes you to fix them.
Utilizing suppliers with low prices might appear to be the best strategy for enhancing cash flow, but flexible payment options may be more crucial. Inquire about the payment terms with your suppliers. Your payments might be able to coincide with your cash inflows.
The majority of businesses follow some sort of pattern for revenue and expenses. You will then discover the characteristics of your company's cash flow patterns. After figuring out step one of your monthly cash requirements, you'll be better prepared to move on to step two as you monitor the numbers month to month and make any necessary adjustments using actual data. With the help of simple-to-create reports, accounting software can help you visualize your cash flow.
Knowing your cash flow pattern can help you prepare sales and revenue forecasts and anticipate the composition of your payables and receivables so that you can make the necessary plans.
Don’t forget it will make cash flow management easier…
OOne way to lessen the amount of cash on your business's premises is to ask customers to use checks and electronic fund transfers. The risk of theft or loss increases the more cash you keep on the business premises. Checks and electronic payments (EFTs and credit cards) are safer to use because they both lower the risk of theft and expedite payments. Credit card processing fees, if they exist at all, are a small price to pay for convenience and security.
Think about it, it is an important part of your cash flow management strategy.
One principle that entrepreneurs usually learn in their early days is that "cash is king." Any business owner that maintains enough cash reserves has more opportunity and flexibility when it comes to running a successful business. Moreover, profits on the papers are meaningless without money.
Businesses that don't manage their cash well might not be able to compete if they don't make the necessary investments, or they could have to pay more to borrow money to run their operations. We know, you must be thinking, it is time-consuming and obviously not much fun. But for business owners, it should be their priority if they don't want to be left behind in the game.
So, if you don’t want to do it yourself or want help with cash flow management – get in touch with Aberny.