5 Ways to Manage Your Cash Flow to Stay in Business

Cash flow is the money that flows into your business on a regular basis. The more you have on hand, the longer you can go before needing to take out a loan or sell something to bring in more funds. Your ability to stay in business hinges on how efficiently you manage your cash flow.

If you consistently run short of money, sooner or later, you’ll have to choose between paying your bills and staying in business. You may not have thought much about cash flow management until it crept up on you; but unless you manage it well, it will bite you in the behind sooner than you expect.

1.     Track Every Dollar You Spend

You may think you’re spending less than you actually are. This can be a major problem for many businesses. It’s important to track (or at least have a good handle on) all your expenses, especially when times are tight. You need to know exactly where your funds are going so you can control your expenses. As the old saying goes, you can’t control what you don’t measure!

2.     Keep a Cash Flow Forecast

If you aren’t carefully tracking your expenses, you might not be aware of how much money is coming in. You may be spending more money than you realize, or, you may be getting more income than you realize. Either way, you need to forecast your cash to effectively manage the timing of cash flowing into your business vs cash flowing out.

You don’t want to fall into the trap of just paying your bills and not growing your business. A cash flow forecast will also help you to invest in your business at the right time for your cash reserves plus agree payment terms that you can comfortably meet.

3.     Only Invest What You Need to Grow Your Business

If you keep putting money into your business that you don’t need, it will slow down your cash flow. At some point, you will probably have to take out a loan, sell something, or ask your current customers for more money to keep the business going. All these options come at a cost. It’s important you assess the value of any investment by looking at the Return on Investment and how long it will take to achieve that return. If the investment isn’t going to help your business to grow or run more efficiently then you should definitely reconsider making such an investment or look more carefully at the timing.

4.     Get Paid in Full and On Time

Slow and bad debtors can really stuff up your cash flow, especially if you have planned for income to come in at a certain date to tie in with cash going out. If cash flow is tight then any late payers can really stuff up your business! Get ahead of the game by keeping on top of debtors, chasing up late payments immediately and ensure you are paid in full, on time, every time. If this isn’t happening then you may need to adjust your payment terms for slow or late debtors.

5.     Keep Your Suppliers Honest

Don’t let your suppliers get lazy. Ensure you are getting the best value for money and have payment terms that suit your business not just your suppliers. Shop around if you need or do an annual review of your main suppliers to be clear of the opportunity cost of keeping with your current preferred suppliers. Some factors that are worth considering are product/service costs, payment terms, customer service when dealing with any issues, etc.

Final Thoughts

There are plenty of reasons to have a low cash flow. Your expenses may be outpacing your income, maybe you aren’t keeping track of your money or perhaps you have recently made some significant investments into your business.

Whatever the reason, it’s important you know how to manage your cash flow to ensure you stay in business. If you aren’t carefully tracking your expenses, you could be spending more than you realize. If you aren’t managing your income, you may run out of money at some point and have to choose between paying your bills and staying in business.

Investing into your business can be a drain on your cash flow so it is important you manage the timing and scale of investment carefully. At some point, you will probably have to take out a loan, sell something, or ask your current customers for more money to keep the business going.

By planning the cash flow needs of your business, you will stay ahead of the game and not be caught short.

Contact us if you need help with cash flow forecasting and managing your cash flow for your business.