Your business will be healthier if you manage your cash flow toward the profit line.
Let’s look at some tips:
- Determine your breakeven point. When will your business become profitable? That affects cash flow. It gives you an early goal to strive for and a ready-made target for projecting future cash flow. Focus on managing cash flow with an eye toward reaching the moment when you are profitable.
- Focus on cash flow management rather than profits. Use your breakeven point as a benchmark. After you reach it and your business is profitable, you need to continue to manage cash flow. This is another plateau in your business life.
- Maintain some cash reserves. Of course, you’ll experience cash shortfalls, but your business survival depends on how you maneuver through them. Keep some cash in the bank so you won’t have to stress about shortfalls.
- Use a cash flow worksheet. A template is available on the SCORE website.
- Collect receivables ASAP. Keep net 30 and net 60 terms in contracts to a minimum. Delegate to a trustworthy member of your team the task of keeping an eye on receivables and contacting customers periodically to collect payment.
- Encourage customers to pay faster. Offer early-payment discounts and keep credit requirements strict. Establish written standards for credit eligibility, and enforce them rigidly. Don’t automatically approve credit for everyone who walks through your door.
- Extend payables as long as possible. Get the best deal you can on payables. Extend them to net 60 or net 90 if you can. But watch out for late fees — pay on time.
- Boost sales with creative incentives. Sponsor a contest, host a customer appreciation event, offer referral incentives, or maybe even take your employees on a publicity tour. Think creatively.
- Designate a cash flow monitor. Have a trustworthy employee inform you when you reach a certain threshold — if you’re a startup, perhaps when your cash flow drops to $1,000.
- Use technology to your advantage — keep cash flow spreadsheets in the cloud at sites such as Dropbox or OneDrive, to access them from anywhere. Use professional accounting software. Make sure to keep files secure.
When cash flow stays positive, your business can survive turbulent times. Use your history and sound financial data to project future cash flows. Cash flow is the lifeblood of your business and critical to its growth. Monitoring it prevents serious business disruptions. You must calculate accurate cash flow projections to address day-to-day activities. Otherwise, you’re placing your business at serious risk. Cash flow is that essential. Maintain a level of working capital that allows you to make it through crunch times and continue to operate your business.
Building and keeping an adequate stockpile of cash provides maximum opportunity and flexibility so you can sleep soundly. Without practicing good cash management, you won’t be able to make the investments needed to compete.
We can help you manage your cash flow by utilizing accounting automation. Monthly and quarterly reviews will also help you to keep abreast of what’s happening in your business. Schedule a call with us today.