Cash flow & small business: Finding the right balance

Managing your cash flow is a key skill that every small business owner needs to master.

By Henry Brown

One of the biggest concerns for small business owners is cash flow. If your cash flow isn’t balanced correctly, you could soon find your business in trouble – even if you’re making a profit. Avoiding cash flow problems can keep your business secure from one month to the next, so you need the right strategy behind you to make it work.

Learn more about managing your small business’ cash flow below.

Make realistic predictions about your profits

To keep your cash flow balanced, you need to have some idea of what’s going to be coming in over the course of the coming months. There are some great sales forecasting methods that you can try to help you establish just how much money will be coming in, and whether you’ll encounter some periods where your cash flow is poor. As your business grows, you’ll become more familiar with the busy and quiet times for your sales, allowing you to more easily identify crunch points.

Have an emergency fund in place

With 25% of small businesses being killed by cash flow issues, you need to make sure you do what you can to protect against such problems. When you finance your own business, this can be tough, but it makes sense to create an emergency fund that can cover you while you’re dealing with late invoice payments and multiple outgoings.

Secure credit if needed

If your cash flow looks like it’s going to suffer problems, look to secure some low-interest credit that you can rely on to make payments while wait for money to come in. You may need to sacrifice your own salary for some time while things right themselves, which is where a loan from Personalloan.co could come in handy. Seek a resolution before your problem becomes too severe, as leaving things until the last minute could have a damaging effect on your business.

Be clear with payment terms

When agreeing on contracts with clients, you need to ensure that the payment terms are clearly understood before you carry out work. Some businesses ask their clients for a retainer, which could help you keep your cash flow balanced and avoids some of the common problems associated with late or unpaid invoices. Agree to payment terms that benefit your cash flow, choosing dates and periods that allow enough time for your bills to be paid.

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Learn to manage your own payments effectively

There are simple tips that could benefit you in managing your own business payments. Paying bills on the last day that they’re due, for example, means you’ve got money in your accounts for longer and gives you more time to ensure that more money comes in before it goes out. If you encounter problems with not being able to pay invoices, talk to your suppliers immediately to avoid any interruptions to service or penalties for missing payments.

Getting the balance right for your business’ cash flow is important. Whether you need to account for a growth period or you’re finding business is slow, regularly review your cash flow to make sure your business stays afloat. Avoid being one of the 25% of small businesses that are sunk by cash flow problems by getting a handle on your business’ cash flow situation.

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Henry Brown is an online marketing executive. When he isn’t talking shop he’s roaming the streets of London, uncovering the extra-ordinary in the ordinary.

 

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