By Anil Lal
Cash flow problems have the potential to run any business right into the ground, so it’s important to understand the ins and outs of maintaining a healthy cash flow. You need to be prepared for cash flow problems and unexpected expenses. Protecting your cash flow movement is essential to long-term survival.
Managing your cash flow is essentially identifying and recording the financial comings and goings of your business finance. In other words, it’s a practice of balancing your income and expenses, which can be stressful. Fortunately, most cash flow problems can be prevented with a bit of preparation and by using the right strategies. Here are a few tips to better manage your finances:
Monitor your cash flow.
Prepare your cash flow projections. Gather all the relevant information, accounts, sales, financial documents, etc. Make sure all your information is up to date. Gathering up-to-date information will help you project your financial predictions for the next three to six months. There are many types of accounting software available to help you record and track and account all your financial data.
Send invoices on time.
Overdue payments are one of the most common cash flow issues with small businesses. To minimize this risk, set reminders to ensure that you send all invoices as soon as you can. In addition, ensure your terms and conditions of payment include late payment penalties and consider offering suppliers an early payment discount if you’re worried about a cash flow shortfall.
Building up a good relationship with your customers and suppliers will most likely ensure that they will be more inclined to pay quicker. It also makes it easier to confront any problems with payment or other issues. For example, if you know you will be paying a bill late, it will be easier to negotiate with the supplier for more time if you are on good terms.
High overhead expenses can be a nightmare for small businesses. This can include computers, phones, office equipment, software and so on. Always be on the lookout for ways to keep these expenses low.
Anticipate future needs.
Keep accurate and up-to-date accounting records as they are important to understanding your business’s financial progress. Use your past monthly cash flow statements and your balance sheet to calculate your available finance and project likely results for the next few months.
Extend your credit line.
It’s important to differentiate between your business and your personal funds. Obtain a business credit card to help you separate your personal funds and also help you build business credit. Business credit cards provide an instant line of credit without waiting for loan approval. When used responsibly, it will provide you cash when you need it. Work with your bank or financial service to determine how to make the most of your cash flow. However, if your credit line is already extended beyond comfort, you could consider additional shareholder or third party investment as an alternative means of raising extra cash.
Good cash flow comes down to maintaining good records, so you can identify and predict areas of improvement. It only takes a few unexpected late payments that may possibly put your business in danger. Many people do not understand how much effort and commitment is required to maintain a healthy cash flow. Hopefully the strategies mentioned above can help!
About the author: My name is Anil Lal and I am a blogger. I enjoy writing about all things business, finance and tech related. I also enjoy ways in which to save money, which makes life a bit easier and more importantly, better quality. You can find me at http://www.theskintscot.co.uk.