When running a small business, there are a few challenges that you might face – with managing your cash flow being one of the most common. You should always strive to have more money coming into your business than going out, so that you can make your company a success, and you can make a profit. It is essential that you have a clear idea of how to manage your money so your business can benefit both in the short and long term.
From building up a cash reserve to applying for loans for small businesses, there are so many ways in which you can improve your cash flow. Read on to find out more!
Why is managing cash flow so important?
Making sure that you are managing your business’s cash flow correctly is essential, especially when you’re a small company. Keeping up to date with your cash flow means that you will have a clear idea of how much revenue you have coming in, and how much money you have going out to pay suppliers, energy bills and staff.
Maintaining good cash flow within your business means that you are more likely to be able to survive hard times, like an economic downturn, or an emergency– giving your business a better chance of succeeding. So, how do you manage your cash flow efficiently as a small business? Here are a few tips to help you.
Start by reviewing your finances
When it comes to managing your cash flow, the best place to start is by taking a look at your finances. How much do you have coming in each month from sales, and how much do you spend on outgoings? You could use this to make a cash flow forecast, which can help you to identify any financial issues before they arise, to give you a chance to fix them.
In your forecast, you should include whether there will be any price increases in materials or services that you need to operate, and how you will adapt the prices of your product to your customers.
You should also think about the year ahead, and whether you predict a dip in sales or an increase – thinking about various seasons like Christmas, and how the economy is performing. This will help you to manage your money and allow you to get an overview of what to expect in the coming months.
Make reporting a priority
This is essential so that you can see what your overall business cash flow looks like whenever you need it – make sure that you don’t fall behind when it comes to reporting, and it can be stressful trying to catch up! Reports help you to regulate your finances, by checking that your sales and profits are correct, giving you an overview of your cash flow, and helping you to stay up to date with the overall health of your finances.
You can keep reporting simple by using software to help you track various metrics that can be helpful, so you can manage your finances more easily, and spend more time running your business!
Build your savings
Building a cash reserve is essential for small businesses. Saving a little each month means that you can build a cushion of finances in case an emergency takes place. This means that you will be able to deal with whatever is thrown at you without putting a strain on your cash flow.
Having access to savings also means that you will be able to continue to operate as you should, continue to make a profit, and minimise the downtime that comes with emergencies in business.
Keep track of invoices
An issue that many businesses may face is invoices being paid late. This can have a huge impact on your business’s cash flow and your forecasting for the future. You should always keep a close eye on your accounts, and don’t be afraid to chase up payment when it’s needed. The longer a customer keeps you waiting, the heftier the impact will be on your cash flow. Be fair, but don’t be scared to chase up late payments, even if you must do this more than once. This way, you will be able to manage your cash flow more effectively.
