Keeping your Cash under Control
Hello fellow entrepreneurs,
Is money flowing out of your company faster than it's coming in? Take a moment to think about the following three questions.
If you answered yes to at least one of those questions, then you are on the right boat. Trying to run a business without managing cash flow is like trying to paddle a boat without an oar. Even if you succeed, it will be an upstream exercise guaranteed to wear you out.
Cash flow is important for all businesses, but it is critical for early startups. If you cannot manage your cash flow within the first year, you will likely not survive the second year.
The management of cash flow is one of the most challenging tasks for small business owners. Having to continually nudge customers for payment uses up valuable time and can be disheartening. You must effectively manage cash if you want to navigate your business to success. Of course, the best direction to paddle a canoe is with the current. You will go faster and will not wear yourself out. By the same token, your business will be healthier if you manage your cash flow toward the profit line.
Smart small-business owners stay on top of their cash flow, monitoring their cash flow statements monthly or even weekly to keep their eye on the pulse of their business. These critical numbers tell you just how much is coming in and how much is going out of your business.
If you have been less than diligent about monitoring your business's money, don't worry. I have compiled a list of some of the best tips that can help you boost your business’s cash flow.
1. Monitor your cash flow regularly
Using cloud-based accounting software will give you the opportunity to monitor your cash flow regularly. It is important though that your bookkeeper keeps the accounting data up to date. You can see what is happening in your business.
2. Prepare cash flow forecasts regularly for the next 3 months ahead
Each month, prepare a three month future cash flow forecast. It is not difficult to do, you just need to spend some time preparing the forecast. This forecast should be an on-going rolling cash flow forecast. The cash flow forecast will show you when you need to obtain extra finance, if needed, to support the three months.
3. Get a business line of credit
Obtain a business line of credit even if you do not use the line of credit. You will have access to extra funds if needed perhaps to cover seasonal requirements or growing the business.
4. Sell Obsolete Assets or Inventory
Do you have equipment you no longer use or inventory that’s becoming obsolete? Consider selling it to generate quick cash.
5. Leasing equipment
By leasing vehicles, computers and other business equipment, you get access to the latest features and avoid tying up cash—but you still get to expense the lease costs on your business taxes.
6. Mobile Payment Solutions
If you sell products or provide services at customers’ homes or offices, get paid on the spot with mobile apps that use your smartphone or tablet to accept payment by credit and debit card.
7. Early Collections
Consider offering your customers incentives, such as a percentage off the total, for early payments. Do the math beforehand to ensure the trade-off (getting paid early) is worth the loss (less money in the long run).
8. Breakeven point
You should know when your business will become profitable because it gives you an early goal to strive for and a ready-made target for projecting future cash flow. Negative cash flow and negative profits make for a grim combination. Focus your efforts on managing your cash flow with an eye toward reaching that moment when you realize your first profits.
9. Focus on Cash Flows rather than profits
This may sound contradictory, but it’s not. Use your breakeven point as a benchmark. After you reach breakeven and your business is profitable, you still need to manage your cash flow, of course. You have reached another stage of your business’s life.
10. Develop cash reserves
You will have cash shortfalls. Your business’s very survival may depend on how you maneuver through those shortfalls. If you start with some cash in your bank account, it will be easier to focus on cash flow and you won’t stress about the shortfalls.
There are ten useful tips that you can adopt in your business today to help you manage and improve your cash flows. I hope that you find these tips useful.
Cheers,
Peter
Is money flowing out of your company faster than it's coming in? Take a moment to think about the following three questions.
- Do you manage cash flow successfully in your business?
- Do you improve your internal process so as to maximise your cash flow?
- Do you forecast your cash flow for the next three months?
If you answered yes to at least one of those questions, then you are on the right boat. Trying to run a business without managing cash flow is like trying to paddle a boat without an oar. Even if you succeed, it will be an upstream exercise guaranteed to wear you out.
Cash flow is important for all businesses, but it is critical for early startups. If you cannot manage your cash flow within the first year, you will likely not survive the second year.
The management of cash flow is one of the most challenging tasks for small business owners. Having to continually nudge customers for payment uses up valuable time and can be disheartening. You must effectively manage cash if you want to navigate your business to success. Of course, the best direction to paddle a canoe is with the current. You will go faster and will not wear yourself out. By the same token, your business will be healthier if you manage your cash flow toward the profit line.
Smart small-business owners stay on top of their cash flow, monitoring their cash flow statements monthly or even weekly to keep their eye on the pulse of their business. These critical numbers tell you just how much is coming in and how much is going out of your business.
If you have been less than diligent about monitoring your business's money, don't worry. I have compiled a list of some of the best tips that can help you boost your business’s cash flow.
1. Monitor your cash flow regularly
Using cloud-based accounting software will give you the opportunity to monitor your cash flow regularly. It is important though that your bookkeeper keeps the accounting data up to date. You can see what is happening in your business.
2. Prepare cash flow forecasts regularly for the next 3 months ahead
Each month, prepare a three month future cash flow forecast. It is not difficult to do, you just need to spend some time preparing the forecast. This forecast should be an on-going rolling cash flow forecast. The cash flow forecast will show you when you need to obtain extra finance, if needed, to support the three months.
3. Get a business line of credit
Obtain a business line of credit even if you do not use the line of credit. You will have access to extra funds if needed perhaps to cover seasonal requirements or growing the business.
4. Sell Obsolete Assets or Inventory
Do you have equipment you no longer use or inventory that’s becoming obsolete? Consider selling it to generate quick cash.
5. Leasing equipment
By leasing vehicles, computers and other business equipment, you get access to the latest features and avoid tying up cash—but you still get to expense the lease costs on your business taxes.
6. Mobile Payment Solutions
If you sell products or provide services at customers’ homes or offices, get paid on the spot with mobile apps that use your smartphone or tablet to accept payment by credit and debit card.
7. Early Collections
Consider offering your customers incentives, such as a percentage off the total, for early payments. Do the math beforehand to ensure the trade-off (getting paid early) is worth the loss (less money in the long run).
8. Breakeven point
You should know when your business will become profitable because it gives you an early goal to strive for and a ready-made target for projecting future cash flow. Negative cash flow and negative profits make for a grim combination. Focus your efforts on managing your cash flow with an eye toward reaching that moment when you realize your first profits.
9. Focus on Cash Flows rather than profits
This may sound contradictory, but it’s not. Use your breakeven point as a benchmark. After you reach breakeven and your business is profitable, you still need to manage your cash flow, of course. You have reached another stage of your business’s life.
10. Develop cash reserves
You will have cash shortfalls. Your business’s very survival may depend on how you maneuver through those shortfalls. If you start with some cash in your bank account, it will be easier to focus on cash flow and you won’t stress about the shortfalls.
There are ten useful tips that you can adopt in your business today to help you manage and improve your cash flows. I hope that you find these tips useful.
Cheers,
Peter
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