Updated: Oct 22
Your company's cash flow is its lifeline. Rigour Mortis sets in when it stops moving. In fact, according to Jessie Hagen of US Bank, inadequate cash flow is to blame 82 per cent of the time when firms fail for financial reasons. Cash flow is a measurement of how much money moves in and out of your company over a certain period.
When your cash flow is positive, you have more money coming in than going out, allowing you to pay your bills and cover additional costs. You can't afford to make such payments if your cash flow is negative. Working capital is the notion of having "enough money to satisfy your financial commitments."
Why is cash flow management important?
Your company's lifeblood is money. Your business will shut down if you don't have enough cash on hand. Managing your cash flow entails determining when you'll have cash in your hands, choosing how to obtain more of it in your hands faster, and determining how to manage your expenditures to avoid cash flow difficulties. Understanding how to manage cash flow is a crucial part of managing your company's finances.
Once you've mastered it, you can focus on how to expand your business, increase your profit margins, and build a thriving company. That's why it's essential to keep a level of working capital that helps you go through those challenging periods while still running the company. Financial flow management is deferring cash outlays as long as feasible while pushing consumers to pay as soon as possible.
12 ways for a successful cash flow management
If you haven't been paying attention to your business's finances, these 12 suggestions can help you improve your cash flow.
Reconcile your accounts, produce reports, and more with online accounting software like QuickBooks Online. Because your data is safe in the cloud, you can simply manage your cash flow no matter where you are.
A company line of credit is an excellent way to protect yourself against cash flow issues. For example, if you use your accounts receivable or inventory as collateral, you might be able to acquire a line of credit for a percentage of them.
Do you have unused equipment or inventory that is about to become obsolete? If you need money quickly, consider selling it.
You have access to the latest features and avoid tying up capital by leasing automobiles, computers, and other company equipment. However, you still get to deduct the lease charges on your business taxes.
Concentrate on costs that occur on a monthly, quarterly, or yearly basis. For example, is it possible to save money on utilities, rent, or payroll? Are you wasting money on subscriptions, services, or insurance that you no longer require? Do you have the ability to modify the terms of any existing loans or leases?
Why not send bills as soon as the job is finished or the items are delivered? Find out who to send your bills to, including their name, job title, and address, so they don't get lost in the churn from department to department. Make your invoices simple and easy to understand by emphasising essential sections such as the due date, the amount due, where to submit payment, and payment options. You can speed things up even further by emailing invoices rather than sending them.
Consider providing early payment incentives to your clients, such as a percentage off the total. Make sure the benefit (getting paid sooner) outweighs the cost (losing money).
Unless you have a compelling reason to pay early, determine how late you can pay your vendors without incurring late penalties or jeopardising your relationship. This keeps the money in your account and out of the hands of your vendors until it's absolutely necessary.
Look for cards that provide perks like points that may be used for vacation or business expenditures. Business credit cards not only provide a cushion for bad times, but they help classify your transactions, making it easier to manage costs.
For instance, before beginning to draw up plans for a project, a construction contractor or website developer may charge a 10% deposit, then half the remaining money when work begins, and the remainder after the project is completed. The firm produces enough revenue this way to fund the materials and pay the personnel required for the task.
If you're on the go, consider Invoice-o-matic and invoiceto.me, which are both free fast invoice generators. You don't even need to register; simply enter your information into a template and produce a PDF that you can email to your customer.
If you sell items or give services to consumers in their homes or workplaces, you may be paid right away with mobile applications that accept credit and debit card payments via your smartphone or tablet.
Keeping track of your cash flow is critical to your company's success. Don't allow a few cash flow blunders put you in a financial bind. A few clever decisions are all it takes to keep your business in the black.