You’ve probably heard all the statistics about how many small businesses fail within their first several years. In many cases, these failures are a result of poor cash flow management on the part of the company.
So how can you better manage your cash flow and avoid problems that could prove to be financially catastrophic for your business? Here are a few tips to help you improve your cash flow management.
- Adjust and improve your invoicing processes: The faster you’re able to get your customers to pay their invoices, the better your cash flow will be. You might consider invoicing at the beginning of projects over a certain dollar threshold, or at least doing partial invoices. Progressively invoicing during a project could also work. In some cases, you might even consider giving early payment discounts.
- Always hold on to some cash: You should always leave some cash reserves in your account, because you’ll never know when you’re going to have a sudden cash shortfall, or when an unpreventable cash flow situation might occur.
- Plan ahead: Performing some cash flow projections can help you get a better idea of what you can expect out of your business’s finances in the foreseeable future, and help you determine what you’ll need to do to keep your finances in order. During the year, be sure to compare your actual cash positions against your projections so you can determine the accuracy of your projections and adjust as needed.
- Know what you need to break even: There are a number of reasons why it’s helpful to know exactly when your business will become profitable. While it won’t affect your cash flow directly, it will give you a goal to shoot for when you’re projecting cash flow into the future.
- Make cash flow more important than profits: This isn’t to say that a focus on profits should go by the wayside, but it’s important to make cash flow your top priority. Even after your business is profitable, you still need to stay organized and manage your cash flow.
- Assign one person to cash flow monitoring: You can delegate the task of monitoring cash flow to an employee you trust with financial information about your company. That person should be instructed to inform you immediately when you reach a certain figure with your cash flow.
- Take advantage of new software: There are so many applications available these days for cash flow management that you would be foolish not to be using them. You’ll find cash flow spreadsheets online, accounting software and other cloud-based files and applications that can make it significantly easier for you to track your company’s cash flow.
These are just a few tips for you to keep in mind if you’re in need of better processes for your cash flow management. For more information, we encourage you to contact us today at MCG Solutions.