How do you manage your business cash flow? Do you have a strategy in place? Is the strategy working?
Cash flow is repeatedly raised as a key issue for business owners. One thing you can almost be sure of as a business owner is that at some point you will be dealing with cash flow challenges.
But there are key principles you can adopt to make managing cash flow as smooth as possible. If you follow these principles you will give your business the best chance of securing your cash flow and never worrying about if you have the cash to do the things you want to be doing.
1. Keep your books up accurate and up to date
Your cashflow is only as good as your records you keep.
Cash flow comes down to the numbers in your business. If you don’t know the numbers in your business, you won’t even know whether your cash flow is headed in the right or wrong direction. Don’t leave it up to guess work. Make sure your books are accurate and up to date.
2. Create a budget
Create a budget so you know what to expect each month. Ensure that your business has enough funds to trade for the month and won’t run short. As a part of your budget work out your break even point so you know what you need achieve in sales to make a profit. Laying the groundwork for securing your business cash flow by firstly ensuring quality bookkeeping and then a clear budget will lay the foundation to manage your business cash flow.
3. Don’t be too lenient with your customers
This one can be tough.
Ideally, you should have great relationships with your customers or clients. Great relationships and good will ensure you will not take catastrophic hits to your revenue as clients leave. Great relationships and good will also will help you grow your business as your customers will refer you to new customers.
However, you need to know where to draw the line. Make sure you have clear trading terms, and that when your customers do not stick to your payment terms, you are not too lenient.
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4. Make sure you keep your business and personal finances separate!
This sounds like a really obvious one but the number of times we see these two things getting mixed up is amazing.
It is critical you keep your personal and business finances separate.
Not only are there legal implications to this but it can also affect your cash flow.
5. Build a cash reserve in your business
Many of the things we do as business owners is to derisk our business and increase the certainty of success.
However, there is always as element of uncertainty to running a business.
This is especially true for cash flow. You do not have full control over what is going to happen. Just look at covid pandemic.
When uncertainty strikes, a cash reserve in your business is critical.
It can make or break your business.
6. Review your budget and actual figures
Once you completed the five steps above, you need to check that what you are doing is actually working.
You’ll know if your cash flow strategy is working by regularly reviewing your budget. You need to make a habit of it. It should be part of a regularly scheduled periodic meeting.
The reality is that being a business owner is busy and things don’t get done unless you hold yourself accountable to them.
That’s why scheduling regular time to review your cash flow budget is important: you need to hold yourself accountable.
If you would like any assistance with your cash flow management feel free to get in touch with us for a no obligations chat.I’m interested in business help