There is a lot to think about when you are running a business. One of the most important things is managing cash flow. Essentially, it is the lifeblood of all businesses, but if your company is still young, managing your cash flow is critical in its first year of existence. Not effectively managing it, your business will most likely not survive to the second year. The key to a successful business involves this crucial area. According to Moneybanker Finland, these are the 10 top tips for better managing cash flow.
Determine When You Will Break Even
If you know when you will break even, it can help you to be better prepared to reach your financial goal within the business. It may not really affect your cash flow, but it will ensure that you have the right tools moving forward. Focusing on your financial goal and concentrating on the milestones you must achieve in order to break even will allow you to have the wisdom of spending your capital. In turn, it will give you the tools to properly budget your money. In other words, you should keep your ultimate goal in mind and go after your vision for the company instead of the money itself because, in the long run, the money will come to you.
Focus on Cash Flow Management Instead of Profits
Avoid concentrating too much on making profits. Instead, keep your focus strictly on the point of breaking even and on your cash flow spending. Look at the way in which you manage the cash flow on a daily basis. Every week, things can change, so you will want to be diligent about checking the cash flow instead of examining it on a monthly basis.
Have a Cash Reserve on Hand
There are always shortfalls when it comes to startups. Generally, they can happen to anyone. However, how you handles those shortfalls can determine whether you make it or break it with your small business. Having a good cash reserve on hand at all times can help to minimize any issues and helps you to keep your focus on growing your company.
Manage Your Funds More Efficiently
You should never handle the money for your own business unless it’s absolutely necessary. Instead, your best bet is to hire an accountant or CFO to handle this aspect of the business for you. If you can’t afford to hire one of these new employees, then turn to an employee you thoroughly trust to monitor your company’s cash flow. Using a specific software program can help. Cash flow worksheets are available to handle this task.
Collect Receivables Immediately
Set a limit on the due dates of invoices to no more than 15 days and mark them as “due immediately.” Give someone you trust within the company the job of handling receivables and following up with customers or clients so that you can collect finances as soon as possible.
Give Customers Incentive for Paying Sooner
Offering your customers some sort of incentive, such as discounts for paying sooner, can really benefit your company. It ensures that the cash flow remains steady and also allows customers to take advantage of financial perks. Have a strict set of standards that determine which customers are eligible as well.
Extend Payables Whenever Necessary
Of course, you want to collect payments as quickly as you can, but at the same time, you should extend payables as well whenever possible. Work with your vendors and suppliers to acquire the best deal you can and extend your payables to net 60 or greater if you can.
Only Spend on Essentials
When running a small business, you will want to minimize your spending because it promotes a better cash flow. To that end, you should only spend on essentials that can help grow your company.
Avoid Paying Everything at Once
One of the big mistakes of startups is trying to pay off all bills at once. This can work against you and negatively impact the cash flow you see coming in. Instead, break up your bills into categories and pay off those that are due sooner first before tackling the rest.
Rely on Technology
Use cash flow spreadsheets that are cloud-based. OneDrive and Dropbox are excellent examples of such software and you can access your files from anywhere. Be sure to also keep all your files secure and use professional accounting software.