Cash flow is the lifeblood of any business. You need it to pay your bills and keep your company afloat. If you have too little cash on hand when a bill arrives, you may end up paying late fees or worse, losing access to an important service like electricity or internet. On the other hand, managing your cash flow can help give you confidence about how much money is coming in and going out over time. With this information in hand, you’ll be able to make smart decisions about what projects are worth investing money into now versus later down the road.
Make a plan.
To improve your cash flow, it’s important to have an understanding of what it is and how it works. Cash flow is the money that comes in from customers paying for goods or services you sell, minus the money that goes out for expenses like payroll and inventory.
Assuming you’re using a computerized accounting system (and if not, get on that), there are three ways to track your business’s cash flow:
- Know what kind of information your system provides about income and expenses. This includes accounts payable dates so you know when payments are due; account receivable balances so you know how much money is owed; cost of goods sold figures so you know how much inventory went out over time; etcetera ad nauseam ad infinitum…
Get up to speed on your cash flow and use the tools available.
You need to get a clear picture of your cash flow. The first step is to establish a system for tracking the money going in and out, so that you can see where the gaps are. You can do this manually or with an accounting software program like QuickBooks, which allows you to set up accounts for specific expenses and income streams, track payments and deposits, create invoices and bills (or use templates), calculate taxes due on sales transactions as well as payroll checks issued–the list goes on!
Set realistic goals.
Set realistic goals. The first step to improving cash flow is setting realistic goals, which means making sure they’re achievable. If a goal is too low or high, it may be difficult or impossible to achieve.
For example: If you set out to make $1 million dollars in sales and only make $100,000, then this will affect your cash flow because it wasn’t what was planned for–and if there’s no plan for something unexpected like this happening (like a sudden drop in sales), then it could create problems down the road when bills need paying!
Know your payables and receivables, including a balance-due report that breaks down accounts by days past due and amount owed.
- Know your payables and receivables, including a balance-due report that breaks down accounts by days past due and amount owed.
- Make sure you’re getting paid on time (or in advance) so that you have money coming in when it’s needed.
- If you can’t collect from customers who owe you money, try negotiating with them or offering them discounts on future orders if they pay up now.
Know what you owe, so you don’t miss payments or get hit with late fees.
- Know what you owe, so you don’t miss payments or get hit with late fees.
You can use a spreadsheet to track your accounts payable and another one for your accounts receivable. If you’re using accounting software like QuickBooks or Xero, it will automatically create these lists for you.
- Use an online accounting system that syncs with your bank account to make sure all transactions are accounted for in real time.
Pay invoices promptly and get paid on time by your customers, too.
- Pay invoices promptly and get paid on time by your customers, too.
- If you’re paying an invoice by check, make sure it’s postmarked on time. If you’re paying electronically, confirm that the funds were received in your bank account before the due date.
- Make sure you have the right address and contact information for each invoice so that payments are sent to the right place at no extra cost to either party (and so they don’t end up lost!).
Managing cash flow is key to keeping your small business running smoothly and making smart decisions about money management
Managing cash flow is key to keeping your small business running smoothly and making smart decisions about money management. Cash flow is the lifeblood of a business; it’s the amount of money that comes in and goes out of your business, telling you how much money you have to pay your bills.
If you don’t understand how cash flows through your company, then it’s tough to make informed decisions about where to invest or cut costs. You might focus on cutting costs without realizing that doing so will hurt revenue later on (and vice versa).
Now that you know how to manage your cash flow, it’s time to put your knowledge into practice. The first step is to create a plan for how much money you’ll need in order to pay all of your bills on time and keep your business running smoothly. Next, get up-to-speed on the tools available for managing cash flow, including invoice and payment management software programs like QuickBooks or FreshBooks. Once these steps are complete, set realistic goals for paying off debt while maintaining healthy profits
