Owning a business will provide you with an education on how to manage your finances rather quickly. For the most part, when your business is running smoothly, you have few worries when it comes to cash flow. The problems begin to arise when your business hits a seasonal low or an unexpected event like the pandemic occurs. You realize in a short amount of time how fluid your business really is. The following tips on cash flow management will act as a guide to help keep you on track.
Talk to a Financial Advisor
Talking to a financial advisor is the best way to find out where you can improve when it comes to managing your cash flow. An advisor will go over your finances and help you find areas where money is being wasted. They can also help you to update your accounts payable and receivable so that you maintain better control of the money going out as well as coming into your business. Reducing the number of days you wait for payment (payable in 15 vs 30 days) will put your money in the bank much faster. You may also ask those you owe money to if they will extend the amount of time you have to pay. This means you keep your money in the bank longer.
Review Your Cash Flow
Go over your cash flow at least once every four to six months. This will let you see where your money is going and how much working capital you have access to at any given time. Many business owners don’t realize their working capital is dwindling until it’s too late and they have nothing left to fall back on. Carefully monitoring your cash flow is the best way to stay on top of your working capital so that you know what is always available.
Speed Up Payments and Cut Spending
If you want to make sure you are getting your money in a timely fashion, speed up your payments. Instead of allowing 30 days to pay, new customers need to pay their invoices in 15 days. If you want to offer your current customers a courtesy, let them know a few months in advance of the change so they can get used to the new deadline. While you are finding ways to bring your money in quicker, you should also be looking for ways to cut spending. Review shipping costs and find a more affordable carrier. Manage your heating and cooling system more efficiently by having it inspected and putting it at a set temperature or using a timer.
Have a Reserve Account
Keeping extra cash in a reserve account is the best way to make sure you have enough cash on hand for an emergency. Find out how much it costs to operate your business for one week or one month. Try to keep as close to the amount you need in your reserve account at all times. Having backup funds available when you need them is the best way to stay in business when times get hard and your sales aren’t what they need to be. A reserve account acts as a savings account for your business. Tucking back a few dollars here and there will be beneficial when rough times hit.
Use Working Capital Loans to Get Through Hard Times
Another good way to make sure you always have the cash you need on hand is to apply for a small business working capital loan. Once you have reviewed your cash flow from the last two or three years, you will begin to see where your down periods fall. In the majority of cases, you will be able to tell from year to year when your hard times are going to be. Applying for your working capital loans before you actually need it will prevent you from dealing with any downtime. Cash flow management is important for all types of businesses. Big or small, making sure your cash flow is on target will ensure that your business is operating efficiently. Talk to other businesses. Get additional tips on cash flow management from them so you can truly find out what works for you.