Cash flow – the movement of money in and out of your business – is the lifeblood of any company. Even a profitable business can struggle or fail if it doesn’t have enough cash on hand to cover expenses. Many owners focus on profit, but cash flow is what determines your ability to operate smoothly.
Let’s highlight some key strategies for managing cash flow in a business:
1) Keep a cash reserve:
- This is an important item and the same goes for personal financial planning.
- I typically recommend greater than 6 months’ worth of expenses so that you are covered for unexpected expenses or slow periods for the business.
2) Monitor cash flow regularly:
- Track cash inflows and outflows frequently.
3) Speed up receivables:
- Invoice customers promptly and set payments terms.
- Consider discounts for early payments.
- Use digital payment systems for efficiency and speed.
4) Control expenses:
- Separate essentials from non-essentials.
- Negotiate with suppliers on terms.
- Outsource when possible to reduce overhead.
5) Use financing wisely:
- Avoid excessive debt that could hurt cash flow.
- If you need funding, explore options like business credit lines, short term loans, SBA loans, or investors.
6) Plan for seasonality and growth:
- Save during high revenue months if your business has seasonal fluctuations.
- During times of expansion, make sure you have the necessary cash flow to support growth/expansion.
Those are some of the key strategies to managing cash flow effectively in a business. By doing these things, you can build a financially healthy business.
Together, we can work to keep you on-track toward your financial goals.
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