4 Ways to Manage Your Cash Flow

Cash flow is critical for any business. It is the amount of money that flows in and out of your business over a period of time. It shows how well you are managing your income and expenses, and how much cash you have available to invest, grow, or save for emergencies.

Per Bench.co  “Cash flow is the lifeblood of your business. And when it stops moving, rigor mortis sets in. In fact, according to Jessie Hagen of US Bank, when companies fail for financial reasons, poor cash flow is to blame 82% of the time.”  

This video has a nice explanation of what cash flow is. 

Why Does Cash Flow Matter?

There’s a famous saying in business: “Revenue is vanity, profit is sanity, cash is reality.” 

Many small business owners struggle with cash flow management. They may face challenges such as late payments from customers, unexpected expenses, seasonal fluctuations, or poor planning. These can lead to cash flow problems, such as running out of cash, missing payments, or losing opportunities.

To avoid these problems, you need to monitor and manage your cash flow effectively. Here are four tips to help you do that.

1. Create a Cash Flow Forecast

A cash flow forecast is a projection of your expected cash inflows and outflows for a given period, such as a month, a quarter, or a year. It helps you to anticipate your cash needs, identify potential shortfalls, and plan accordingly. You can use a spreadsheet, accounting software, or a cash flow app to create your cash flow forecast.

2. Invoice Promptly and Follow Up

One of the main causes of cash flow problems is delayed or unpaid invoices. To improve your cash collection, you need to invoice your customers as soon as you deliver your goods or services, and follow up with them regularly until they pay. You can also offer incentives for early payments, such as discounts or rewards, or charge penalties for late payments, such as interest or fees.

3. Manage Your Expenses

Another way to improve your cash flow is to reduce your expenses. You can do this by reviewing your spending habits, negotiating better deals with your suppliers, cutting unnecessary costs, or switching to more efficient processes. You can also use a budget to track and control your expenses. Most people find budgeting an eye-opening experience—we rarely have an accurate estimate of how much we’re spending on things!

4. Build a Cash Reserve

A cash reserve is a fund that you set aside for emergencies or opportunities. It can help you to cope with unexpected situations, such as a drop in sales, broken equipment, or a new project. You can build your cash reserve by saving a percentage of your income, or by securing a line of credit or a loan from a bank or a lender.

Let Us Help You

Seek professional advice—Shaw and Associates would love to help you with any or all of these steps to cash flow success.

Contact Shaw & Associates Chartered Accountants for accounting help you can count on. One complimentary meeting with us will put you and your business on a more profitable and positive path.