Staying on Top of Your Business Cash Flow:
Today, we’re going to talk about cash flow. As the old adage goes: cash is king in business. So if this is the case, then cash flow is the lifeline. However, there will be times, especially as a small business when you will experience a cash flow shortage that will have you feeling more pauper than prince. This is normal, but it’s important to keep on top of it as soon as possible.
In fact, cash flow shortage has been listed as one of the top 5 reasons that so many businesses fail in their infancy. Therefore, it’s important to develop a certain reverence for cash. Whether you like it or not, cash owns you and your business. What are we going to do about it?
Number 1: Always know what cash is coming in and out of your business. This means keeping up to date documents and cash flow projections and revisiting them regularly.
Number 2: Always make sure that your planned income comes before your planned expenses. This may seem obvious, but you’d be amazed by how many people get caught out when they don’t have enough money to pay their staff or their suppliers.
Number 3: Budget for emergencies or unexpected expenses. The general wisdom here is to always have one month’s of expenses aside for any tricky situations that you may encounter.
Number 4: Invoice promptly and always chase up any late invoices immediately. We would also suggest that you have a contract for every client that you have. In the contract, lay out your expectations of payment. This could include whether or not you’re going to charge any interest or late payments. It could also be a very good idea to charge a deposit for larger paying jobs.
Number 5: Always think about the money. It’s really a good idea to assess your cash flow before you make any decisions pertaining to your business.
Number 6: Schmooze your financiers and suppliers. These people can be very, very handy if things get tough. Having good relationships with them could stand you in very good stead if you ever experience a cash flow shortage.
Number 7: Take into account any short term fluctuations that may not show up in your weekly or monthly budgets. Are you going to have some down time over Christmas? Is there another period in the year when you experience a little bit of a lull?
Number 8: Develop warning signs that could help you when unexpected changes could cause your business to run out of money, which leads us nicely.
To recap what we’ve learned: do focus on receiving payments, do take into account any fluctuations that may happen throughout the year, and definitely do keep your finances in mind with every single business decision that you make. Don’t always assume that you’ll be paid on time. Don’t make any unnecessary expenditures, especially without consulting your cash flow first.