How to Manage Small Business Cash Flow?
As a small business owner, you often juggle with tons of activities. With a lot of tasks on the line, you hardly get any time for scratching your head on the company’s finances. Also, your business is on the growth ride from the very first day. So, why to worry, right? Wrong. Even if you have the best business idea ever and major customers queuing up at the door, poor cash flow will spell disaster on your business.
In fact, inefficient cash flow is one of the biggest reasons why 80% of the businesses sink. So if your company’s income is not stable, chances are you will soon find yourself in financial difficulties. However, fortunately, there are ways to avoid the cash crunch and keep your cash flow on an even keel.
Let’s look at a few effective strategies that can help you manage cash flow.
- Stop Dumping Mountains of Money into Sales
Of course, you need to spend money to make money. But that doesn’t mean you have to pour a fortune into hiring the tip-top talent for your sales team. Recruiting outstanding sales staff and effective marketing is crucial for a small business . But there is no point in spending too much on sales if you are not seeing the desired result. You should figure out whether your sales expenses are really worth it or not. Keeping an eye on the bottom line and evaluating the costs and benefits of every single expense can prevent your cash flow from drying up.
- Consider Having a Cash-Cushion for Your Business
Sometimes things don’t go as you plan. While everything on your business is on the right track, suddenly you lose your potential client or your best salesperson abandons the team or critical equipment get damaged. Such scenarios are inevitable in business and this is where the emergency cash reserves come to your rescue. Saving an amount that is equivalent to at least two months of operating expenses can safeguard your business from cash flow hiccups.
- Pay Heed to Late Payments
Tracking the invoice is a daunting task but ignoring the late payments can put your business on the rocks. Slow-paying clients can become a major problem for small business cash flow. If your clients often take 60 days or more to make the payment, you may find yourself short on cash even when revenue is good. So, it is important to set a standard timeframe for sending invoices and receiving payments. Also, there should be late-payment policies in place with penalties associated with delayed payments.
- Be Smart When It Comes To Debt
Debt is quite common in business and having a loan can be helpful when you need to acquire startup funding, capital equipment, or a new office or storefront space. But while borrowing you should make sure the return is greater than the investment. Consult with your accountant and ensure that the payoff is worth it.
- Plan for Strategic Growth
When you get a new contract, it calls for more cash to be spent on the rollout of new products, more staff, a bigger office for accommodating more people, and maybe more equipment. All these extended services will bring in more revenues, but with this comes in more cash outflows. Aiming for growth is crucial for any business but sometimes excessive forced growth can spell doom for a business. So, it is essential to have a strategic growth plan in place to avoid such situations.
The Bottom Line
Cash flow is the pulse of any business. If you want to efficiently project the future viability of your business, you must diligently monitor and plan your cash flow. Implementing the above strategies of small business cash flow you will have long-term business success.