When you run a business, you’ll soon become experienced with the concept of cash flow. Through careful financial planning, you can ensure that your start-up won’t run into any monetary issues and has the funds to flourish and grow consistently.
By definition, cash flow is the amount of money that is being transferred in and out of a business. When you manage your cash flow, you should be aiming to obtain a consistent positive income. Essentially, having good cash flow management ensures a business is making more money than it is spending, thus bringing in profits.
With 82% of businesses failing due to cash flow problems, it’s vital to prevent cash flow crises before they occur. Below, we have some tips to avoid this from happening as well as to improve your business’s cash flow.
It is important to make accurate cash flow projections for the future. For most businesses, there will be seasons where you may get fewer sales or need to spend more on inventory. By being able to predict your business’s needs and profits, you can ensure you plan for the future and are able to make good financial decisions to help your company grow.
Whether it’s your debt payments, employee income, or rental costs, money will be leaving your business whether you like it or not. You should have a thorough understanding of your company’s costs to cut out any unnecessary expenses and expenditures that don’t add value to your business. Some examples of this may be minimizing your inventory or even reducing employee headcount.
When any business offers credit, there’s always a possibility a customer may take a longer time to — or perhaps never pay you. This can really disrupt your cash flow, especially if you’ve spent money on materials and suppliers. In order to protect your business from these types of issues, you can credit-check new clients or limit the amount they pay with credit until they build a payment history with your company.
Sometimes, crises are just unavoidable, and it’s important to be prepared in the event of one. By building a reserve of cash, one crisis won’t knock out your business. Some great ways to do this are by putting aside a percentage of monthly net profits or transferring some extra cash into an interest-bearing bank account.
Effective cash flow management is the backbone of any business’ success. With these tips, you can ensure your company avoids cash flow crises and has the funds to improve and thrive. Contact us today for more financial insights and financial planning services that will take your business to the next level.