5 tips for managing your cash flow
Owning and operating a business is an exercise in creativity, innovation and invention, but when it comes to cash flow, hard numbers need to add up. Depending on the business, knowing if you’re profitable can be simple or maddeningly complex.
With a solid understanding of your cash flow, you’ll have peace of mind that things are on track, or time and options to make needed adjustments.
Know your business and map the money.
Build a budget that reflects your business rhythms. Seasonal businesses need a plan for slow times. Retailers need a way to pay for inventory. Manufacturers have raw material and labor expenses before they see income. Talk to a business advisor for help budgeting – it’ll help keep you on track.
Keep excellent records (or have someone do it for you).
Spreadsheets and paperwork are your friend. Really. Poor recordkeeping will cost you in the long run, in missed bills, lost invoices, or extra work at tax time. Digital tools make it easy to keep books, track expenses and manage payments, but if you aren’t a fan of numbers or are busy, hire it out.
Build in financial flexibility.
Everybody needs some money sometimes. You may have a bad month, or need to stock up, or need to invest to grow and meet demand. Plan ahead by building a cash reserve if you can (ideally earning you interest) or having a line of credit you can tap on short notice. Your banker can help.
Ben Franklin had it right about pennies saved and earned. When you buy used equipment, shop for supplies on sale, clip coupons, and rent things you only need sometimes, you are reducing overhead and growing your profit margin.
Build solid relationships with your partners.
Treat everyone fairly and consistently and communicate clearly. Make sure customers and vendors understand what you need from them and when. Have a system for following up on invoices and let vendors know when you can pay them. You’ll eliminate uncertainty and hopefully be treated the same way in return.
If you’re new to business, start on the right foot by building a network of trusted business advisors and financial partners who can help you. If you’re an established business, it’s never too late to start good new fiscal habits. It will help you get the most out of your business and your life.