If you’re running a small business, cash flow can be one of the main things on your mind. Generating enough revenue to keep the lights on, pay your suppliers, and cover staff wages is vital to ensure that the business doesn’t fold.
In this article, we’ll go over our top tips for how to manage cash flow for your new business, including different methods that will help you maintain a stable revenue stream, whatever industry you’re in. We’ll also talk about how managing your cash flow can help your business in the short and long term.
What is cash flow?
Simply put, cash flow is the money coming in and going out of your company. This will be everything you get from customers, investors, and lines of credit, vs everything you spend on inventory, wages, and any other outgoings. This is something you should always need to have in balance. A lack of incoming cash is usually the biggest issue because this means that you’re at a greater risk of your business failing. Managing your cash flow is vital to help your business stay solvent and grow.
Cash flow management
If you’re looking for ways to improve your cash flow management, here are some tips to help.
Get good lines of credit
Making sure that you have reliable lines of credit can help you cover your expenses even when you don’t have enough cash coming into the business. It’s sensible to go for credit that’s flexible, where you can supplement your cash income with as much money as needed without having to take out a sizeable. Business credit cards are a great solution to help you manage your finances even if your business goes through quiet times.
“Hospitality is a rapidly growing industry, making it essential for businesses to manage their cash flow effectively. Businesses can utilize a business credit card for their daily expenses, such as purchasing supplies, inventory and equipment, helping them preserve their cash. They can also use their business credit card to closely monitor and control spending to improve cash flow management and enhance their financial stability.”
David Luck, Founder and CEO of Capital on Tap
Keep personal and business expenses separate
It’s vital to make sure that your business and personal expenses are all kept separate. This helps you know exactly how much the company is spending, alerting you to know how much cash you need to be generating to cover these expenditures. Plus, it’ll make it much easier when it comes to dealing with taxes.
Forecast your expenses
Forecasting your expenses and outgoings is vital to help you prepare for what’s coming. Once you know what’s ahead, you can aim to have enough cashflow to deal with it. There are many different ways to forecast your business finances, but the most important thing is to find a method that works for you. Also, remember to build an error margin into your forecast. It’s highly unlikely that you’ll get it exactly right, and an unexpected bill could ruin your cashflow management if you aren’t careful.
Get paid in a timely manner
It’s estimated that half of US companies have invoices outstanding and overdue, which means they’re not getting vital funds from customers. This should highlight the importance of making sure you get paid on time. If you have invoices that aren’t getting settled, you’ll lack the money you need to invest into the business, or even just cover bills. You have to make sure that you sent out invoices to customers promptly, and you then chase up if they don’t get paid on time. It can be stressful, but it’s essential.
Don’t overstock
Buying too much stock is a sure way to burn through your liquid assets. Sure, you’ll usually get better deals if you buy things in bulk, but if you don’t manage to sell or use the inventory, then you’re putting yourself in a worse position. In the best-case scenario, you’ll probably lack funds until you manage to sell more. In the worst outcome, especially with perishable goods, you’ll have wasted money on items you can never sell.
Work out how to use profits for business growth
When you’re making steady profits and can cover all your outgoings, there’s still plenty that you need to address with your cash. It’s never too soon to consider reinvesting profits in your company. This might mean getting new equipment or more inventory, or it might mean using traditional investments to boost the amount you have in reserve to fund future plans.
Keep some of your funds liquid
No matter how far your company is in profit, you’ll encounter problems if all of your funds are locked away. It’s vital to keep some of your funds liquid and to make sure you have cash that’s accessible, whether it’s money in an account, or unused balance on a credit card. This will help make sure that you can easily and quickly cover expenses that come up in the day-to-day process of running your business.
Use good accounting software
Getting good accounting software can help you keep track of your cash flow much more easily. There are plenty of different accounting programs you can use, and it might take a while to find the best one for your business, but it’s generally worth it. Even if you think adopting new software is time-consuming, you’ll see the benefits when you’re able to track expenses and file your taxes more easily.
Conclusion
Cash flow is all about the money coming into your company from clients and customers, as well as the amount you have to spend on bills, inventory, expenses, wages, and anything else. Managing your cash flow is vital to make sure that your business can handle both regular expenses and unexpected bills. There are many ways you can work on this, including having access to flexible lines of credit, such as credit cards. Forecasting your outgoings, and being careful not to spend too much on inventory all at once are also useful tactics to bear in mind.
