How to Manage Your Business Cash Flow?
Managing cash flow is an integral to the operations of a business is the alignment of its finances with the necessary expenditures. In order to fully maximise and balance the profits, the entrepreneur must know how to facilitate the flow of the money into the business and out of it.
For new business owners, however, there is a tendency to be overwhelmed with all the details that must be addressed on a daily basis. Sometimes, the expenditures are not as consolidated as it should be, and are instead postponed to be addressed for a much later time, ending up in a pile of many other backlogs. Experienced entrepreneurs would be quick to warn, however, that this is precisely the kind of scenario that you would want to avoid from the get-go.
Being up to date and on top of your expenses, liabilities, profits, and income are integral in further stabilising the foundation of your business endeavor. Being aware of these details, however, are not enough. You must know how to properly and actively facilitate them as well.
In order to fully understand how to go about this, however, it is first important to identify what constitutes cash flow. As mentioned above, expenses and profits make up the duality of business finances.
Cash flowing out from the business would include:
Purchases for improvement of business operations
Cash flowing into the business, meanwhile, would include:
Sales of product or service
Gains or proceeds from loans or credit card use/ small business funding/ fast business loans
Sales of equipment/assets used for business operations
As you can see, these different elements in a business cash flow generally affect three basic categories, which are financing, investments, and operations. It is undeniable, therefore, the importance of ensuring that the same are properly facilitated and managed. Otherwise, the business is headed for disastrous results.
How can new business owners maximise these resources, therefore, without neglecting other important aspects of their business? Here are some tips that could make cash flow management a bit easier, especially for the inexperienced.
Know Your Current Cash flow Status
Before you can even plot out a feasible system, you have to first know your current standing with regard your cash flow. How much of your budget are actually going to operational costs? How much are allotted for loans payments, and when? How sustainable is your business overall, especially in the context of long-term operations and costs?
Having information on these details will help a lot in plotting out a more long-term visualisation of where your business can go. More important than these projections, it should also help paint a clearer, more realistic picture of your business’ status in the here and now.
Have you been experiencing severe fluctuations in your profitability? What could be the cause of it? Which part of the month are you most likely shelling out more cash than normal? Is this for a loan payment or asset acquisition for business operations?
To be able to have a more holistic understanding of the things that you should be focusing on or prioritising when it comes to smoothening out your operational needs will translate to positive effects for your business’ overall performance.
Set Cash Flow Targets
Once you’ve identified where you’re at in your business right now, then you can have an easier time plotting your forecast for the succeeding months. Having these targets are very useful, especially if you would like to have an idea of what your performance trajectory will be like. The other benefit is that it allows you to prepare in advance for contingencies, in case emergency situations arise.
The more primordial role of the cash flow targets, however, is that it sets a standard for the business owner, a goal to meet. Having a clear, identifiable objective should make it even more compelling for the entrepreneur to craft well-designed business plans for their improvement.
Streamline Payment/Invoice Transactions
As mentioned earlier, the one thing you don’t want to fall behind on is your accounting. Most businesses become overwhelmed with the paper works not because it is simply voluminous, but rather, because they were backlogged.
A good advice to follow would be to simplify the payment and invoicing processes. As much as possible, for example, avoid cheque payments if only because this means a few days of processing before the payment is validated. It cannot be helped for bigger amounts, though, and not all suppliers are keen on the use of electronic banking. The responsibility of due diligence, therefore, will still fall on your shoulders, ultimately.
Following that simplified payment process, there is also the matter of invoicing. Some businesses would do this every two weeks, but unfortunately, this system can easily spiral out of control faster than anticipated. The immediate way to deal with this is to issue an invoice as soon as the payment is made. Whether it is cash or cheque, there has to be an acknowledging form that will identify a completed transaction.
Have a Back-up
This does not only pertain to backing up your data in hard copy or in a secondary email. Rather, it also means backing up with another person apart from you. Transfer your knowledge of the business’ cash flow to someone that you trust. The wisdom behind this is you will have a partner, or a sidekick if you will, when it comes to dealing with your cash flow.
Should there be any discrepancy in your actual accounting or computation, there will also be someone who can corroborate or assist you in correcting the information. This should also be good practice for task delegation, thereby improving not only your cash flow, but also your work flow.
These are just some of the most basic tips and advice that beginning entrepreneurs might very well make good use of in order to facilitate a smoother operation of their business. It’s not always going to be easy and error-free, but at least there is a system in place that can mitigate the frequency, if not eliminate altogether, the tendency to put your business at risk by failing to manage your cash flow properly.
Or call 1300 760 930 to speak with one of our friendly Lending Consultants now.