One of the most important things you will do as an entrepreneur involves learning how to manage your cash flow. The balance between money coming in and going out can either help your company grow larger or become a big stumbling block to your company’s future.
- Stay Financially One Step Ahead
To effectively manage your business’s cash flow, you will need to learn to identify expenditures (especially large ones) before they become a financial problem. With enough time, you can plan a strategy to meet these expenses with the least impact on your budget. For example, say your business will need an expensive piece of machinery to meet new legal requirements. If you have knowledge of this expenditure far enough in the future, you will be able to trim expenses in order to buy the needed equipment and substantially lessen the financial impact of the purchase.
- Calculate Your Cash Flow Projection
How often you sit down and calculate your projected cash flow depends on your type of business, but it is a task that should be done on a regular basis. A solid knowledge of the cash flow of your business can help you spot potential problems before they become a reality, plan for leaner times, and sock money away during periods of prosperity. A cash flow projection can help you spot customers that are chronically late on payments or plan for bigger than average expenditures looming on the horizon. You will also be able to determine the amount of time needed to pay vendor invoices and avoid any late fees.
- Make Sure Payments Are Accurate
When calculating your cash flow projection, be sure and check all payment dates on invoices and other bills to make sure they are correct. Mistakenly paying a bill past its due date and accruing a late fee is an unnecessary waste of money. Double check all amounts of money before they are paid out as well. Make sure all records are accurate to the best of your ability. Hiring a bookkeeper to go over your records and files to check for errors or miscalculations could be a benefit.
- Use Savvy Strategies With Receivables
Having to wait for payment on sales can quickly slow down the cash flow to a mere trickle. Develop some strategies to help solve these sort of problems. For example, when considering new clients, you should run a credit check to make sure they have a good history of repayment of their debts. Asking for a deposit of a portion of the order upfront is another way to verify that the customer is serious about the commitment and will fulfill their part of the bargain. Another method is to offer a discount to any customer that pays in cash or pays their bill quickly. Shipping orders COD (Cash On Delivery) to customers can guarantee quick payments on orders.
- Look For Flexibility With Payables
When sales are good, you may be tempted to ignore your cash flow situation and payables. However, during times of growth and expansion, production costs may spin out of control very quickly. Careful management of cash flow during prosperous times is necessary to make sure funds are available to pay all accounts on time. Research different vendors or suppliers and investigate any offers of discounts to find the most flexible terms possible in order to better your financial situation.