For a small business to succeed, it is crucial that you can predict and anticipate when you will be paid or when you will have to make repayments. Poor cash flow can cause a business to collapse even when it seems to be succeeding, even if lack of cash flow does not endanger your business it may limit your ability to grow. Yet, it is a priority to have a solid plan in order to maintain your business financially stable and running. Within this blog, it would be discussed the best practices for managing cash flow in a small business.
1. Create a cash flow forecast.
A cash flow forecast is a useful tool that helps business owners predict estimated future sales and expenses. It can also help visualize if you have enough cash flow to continue to run your business or expand it. By projecting your cash inflows can help you consider factor in changes based on the economy and customer behaviors, this will help you prepare in advance and make any given accommodation to your business operations.
2. Monitor your cash flow on a regular basis.
It is important to frequently monitor your cash flow, to notice possible problems as soon as they take place, this allows you to take better action and helps avoid financial problems. The most effective way is to review cash flow statements to get an overall view of all the money that has emerged in and out of your business account to understand where your cash position stands.
3. Manage accounts receivables.
Managing account receivables is essential in order to help optimize cash flow for working capital to always be available. For instance, ensure that your customers pay their invoices on time by sending out reminders and setting clear payment terms. Considering offering discount for early payment or adding late payment fees to prompt payment.
4. Control Inventory
Managing inventory and cash flow coexist with each other when running a successful business, one of the most effective tips to control inventory would be a inventory turnover. This can measure how often you sell and replace your inventory, by establishing a system using software or spreadsheets. Another way to control inventory you need to know what products you need to stock and in what quantities. Analyze your sales data and customer demand to determine your inventory needs.
5. Plan for seasonal fluctuations
Small businesses may find it difficult to plan for slow seasons, but having a solid plan in place to execute when to prepare for these fluctuations can be beneficial. Analyzing previous sales can assist in identifying patterns and data from previous years, which can help in predicting throughout the year. Consider offering promotions during slow periods to increase sales and encourage customers to buy your products or services.
6. Considering financial options
Cash flow is the critical point to keep any business afloat taking into consideration, financial options could be beneficial towards your business. For instance, small businesses can apply for a line of credit to cover low cash flows when slow season hits or unexpected expenses arise. Invoice financing is another option for businesses owners involving borrowing money against outstanding invoices, it can provide immediate cash flow if needed.
Cash flow is necessary for a small business to manage daily operations, taxes, inventory purchases, employee salaries and other operating expenses. By regularly creating a cash flow forecast, monitoring your cash flow and managing accounts receivables can keep your business with a positive balance. In addition, controlling your inventory, planning for seasonal fluctuations and considering financial options.
By taking these steps, you can have better control over cash flows and contribute to a long-term success of your business. Here at Capital Infusion we proactively help you manage your finances and achieve financial stability within your business. Don’t wait until a cash flow crisis hits- take action.