The primary goal of any business is to make a profit. While that’s true there is much more to it than just cash in and cash out on a monthly, quarterly, or yearly basis. Cash flow is very important. If it’s not managed properly, you could find yourself in big trouble.
Cash flow is how balanced that cash coming in is with the cash that goes out. Even businesses that are raking in the sales can have cash flow problems. It’s always about timing, and if your timing is bad, then there are several issues that you could have, some of them serious enough to sink your business. You could miss payroll, for example, or be stuck without some backup if an emergency strikes. Not only that, but if you are short on cash you may miss out on investment opportunities that could have been profitable. Here are some of the best cash flow management tips for small businesses that will keep you well-balanced at all times.
Send Invoices Right Away
Since cash flow is about trying to balance things so that you always have a balance in the bank for whatever you need, it’s important that the cash is coming in. If you are slow sending out invoices, it will be slow getting paid. Your accounts will show that you have those invoices as revenue, but if you don’t actually have the cash then it doesn’t really do you any good. Many businesses find that a monthly invoicing system works for them, since it can be hard to do it on an ongoing basis. However, if you are having cash flow problems then it would be a good idea to send out invoices as you go.
Outsource Your Bookkeeping
You might be the most talented and thorough accountant in the country. You might be able to manage your books in your sleep. However as a small business owner, you have many more duties than keeping the books. If you do it yourself, you could end up putting it off for more pressing matters, leading to a situation where you are so behind that you might never catch up. Or, you will rush through things and make costly mistakes that will leave you in tough situations.
Outsourcing your bookkeeping needs is a great solution for this. You can use remote bookkeeping services to handle all of your data entry and balancing accounts. It will be accurate and timely, so you won’t have to worry about mistakes and you will have the data you need when you need it.
Take Out a Business Line of Credit
Many small businesses choose to borrow the money before they need it, just in case. Borrowing money while your business is doing well and bringing in money means that you will be less likely to be rejected, and you may get favorable rates. If you wait until you are in financial difficulty and get rejected then you won’t have a safety net to fall back on.
Lines of credit are a great option because you only need to pay interest on the balance that you’ve used. You won’t have to pay anything back at all until you use it, so you can have it in your back pocket for when you need it.
In general, buying your equipment is the most cost-effective option in the long run. However, if you are worried about cash flow issues, then leasing should be something that you strongly consider. What it does is provide you with cost certainty on a monthly basis. You know that you won’t have a large cost when your equipment breaks down and needs replacing, either. Depending on the type of equipment, you may also be able to add a service plan to your lease agreement. This will also provide cost certainty and avoid big and surprising repair bills.
Examine Your Operations
It’s especially important for a small business to regularly analyze operations and see if there are any inefficiencies. You may be paying too much for a service, or you have seasonal staff that stay on longer than they need to. Preventing cash from leaving your account will also help with your cash flow, so go over everything with a fine toothed comb. There may be many places where you are paying too much but you’ve never taken the initiative to check.
Don’t take cash flow for granted. Even seemingly successful small businesses have found themselves in deep waters because they didn’t pay attention to how much was in the bank and how much they actually needed. To avoid this, you need to adopt strategies to keep your books balanced. Once you’ve achieved this, you won’t have to stay away at night worrying about paying your staff, funding an opportunity, or paying for something unexpected.