As a business owner, there are many things you need to monitor daily for you to gauge the performance of your company. Your business cash flow is such a sensitive thing that it has to be monitored on an hourly basis when necessary.
Does cash flow have anything to do with the money counter in your cash room? So, what is cash flow? Well, cash flow refers to the amounts of money that come and go out of your business in a particular period. Positive cash flow refers to a situation where more cash is coming into your business than is leaving. This means you can easily pay your bills and cover other kinds of expenses. On the other hand, negative cash flow means you are getting less cash than is leaving the business.
There are many ways you can handle your business cash flow to ensure success. You want to handle your cash in such a way that there is a balance between the monies coming in and monies going out of the business.
Here are ways to handle business cash flow:
1. Check your profitability
This is the first step to ensuring that your business is making a profit. If your fundamentals are not right, even the best cash flow management may not make any sense. Analyse each product and determine if it is bringing in any profits. Ensure all products are appropriately priced and ensure there are no inefficiencies. This is one of the best ways to get profits from the business. The idea here is to chase profits and not just sales.
2. Do a cash flow projection
Prepare a projection of your cash flow for the coming year. This can act as your early warning system about any cash flow shortcomings that are possible. You can use accounting software or a spreadsheet to help you make projected cash inflows and outflows. You should include any anticipated sales. With this projection, you can anticipate slow periods and plan for them. Check your cash flow position once a week, once a month, and yearly to see how you are doing. Meanwhile, make any necessary adjustments to ensure all is working.
3. Do not drain cash. Finance any big buys
This is a very important way of managing your business cash flow. Some people could be tempted to finance their big buys using cash. Even if your business has some money right now, financing long-term assets should always be the right path. The danger of buying long term assets in cash is that it depletes the cash flow reserved for the business and sooner or later, a business has to wind up.
4. Speed up cash inflows
This is another good strategy that can improve your business cash flow and improve efficiencies. One of the best ways to quickly get money into the business is by sending invoices fast enough. You can also ask your clients to pay electronically. Any slow payers should be charged interest so that they can improve their payments in the future.