As a small-business owner, you know how important it is to manage your business’s cash flow. If you don’t, it can lead to disaster. In fact, according to the Small Business Administration, cash-flow problems are the main factors that cause small businesses to fail.
Cash flow is absolutely essential to the success of any small business. No matter how well your business is doing, if you don’t have the cash available to pay your vendors, you won’t be able to run your business at all.
With the help of my accountant, I was able to smooth out my business cash-flow process and keep on top of all my finances. Here are the tips my accountant gave me.
Know the basics and how to manage them
As you probably know, what makes cash flow so difficult to manage is the fact that it’s constantly changing. Whether you’re looking at positive cash flow (for example, incoming cash) or negative (monthly expenses and salaries), it’s hard to keep track of it all. But there are some basic steps you can take that will lay the groundwork for a steady, trackable cash flow.
First, remember to always focus on cash flow, not profit. Having a good cash flow is what creates a good profit, not the other way around. To focus on your cash flow, you’ll want to make sure you make a plan for your cash flow, by setting targets and regularly monitoring them.
Stay organized and efficient
Once you’ve decided on your goals and how you’re going to manage your cash flow, you need to stay as organized as possible. It’s also important to be efficient—for example, if you send an invoice, you’ll want to be paid as quickly as possible, and there are incentives to help you do that.
Some strategies for good organization and efficiency are invoicing quickly, making payments easy for customers, and establishing payment arrangements that minimize debtor delays. You can also speed up payments by offering deals—for example, giving a percentage discount to customers for early payments.
Reviewing your payroll process is also key, as it will help you keep track of salaries and protect you from IRS fines.
Use technology to your advantage
One of the best advice I got was to take advantage of the latest technology. I wasn’t even aware that the right technology can make a business much easier to run.
For example, one way to make payments easier for customers is to allow them to pay online, or even via their phones. Electronic invoicing is also key, as it will enable you to customize invoices and set up automatic reminders.
Payroll software can make things a lot easier for a small business. And cloud-based accounting can help simplify your business cash-flow management too—accounts are viewable from anywhere, and data is always backed up automatically online.
Technology offers many ways to help you run your business more efficiently. It’s all about choosing what works best for you—so make sure you check out this list compiled by Forbes of technologies that will increase your cash flow.
Be smart financially
It may sound like I’m stating the obvious, but the fact is that many businesses make mistakes with their finances when they’re struggling to manage cash flow—especially if they’re just starting off. For example, it’s easy to forget to build a financial cushion when you’re busy trying to make as much money as you can.
You need to be prepared for those unexpected down cycles, so make sure you’ve got some money saved. The same goes for making sure you don’t use the sales-tax money to keep your business afloat—it’s a common mistake, but you’ll have to pay the price later in penalties and fees.
Better to cut costs by cutting back on utilities or rent, or even renting office equipment.
It’s also smart to work on your credit. Make sure you establish a relationship with a reputable credit provider before you find yourself in a situation where you need one.
The same goes for your relationship with your banker. You’ll always want to keep them informed about how your business is going because they’ll often be there for you to listen and help. Banks can also offer services of great use to you, such as overdrafts or credit.
For a small business, it is important to keep track of business cash flow so that you will be successful in both the long and short-term. Not only will this help you stay organized in your daily operations; it will also help you achieve your financial and entrepreneurial goals. If you follow these tips on how to best manage your business cash flow, you’ll be well on your way to success. If you’re interested in learning more about managing cash flow, feel free to reach out to the Currency team today.