Most people already know just how valuable cash flow can be to their company – but do you understand that it could mean the difference between business death, and business growth? The truth is that 90% of the small businesses that get started in the market today end up having to close their doors for good because they simply don’t have the skills or resources required to properly manage cash flow.
The most unfortunate thing about this truth is that cash flow doesn’t have to be as difficult as it seems. After all, the foundations of good cash flow rely on simply doing whatever you can to promote positive money flow in and out of your business. For some people, this will mean investing in a professional bookkeeping business to help you watch over everything that happens in your company, whereas others may need to take deeper steps to mitigate potential disasters.
Here are some tips that could help you to banish the cash flow surprises that are most commonly responsible for killing new businesses.
Profits and Cash Aren’t the Same Things
Just because you’re making a profit in your business doesn’t mean that you’ve got a good cash flow. Even if you make a significant amount of cash in one month – if that money immediately goes back into keeping your business afloat – then you’re probably not doing as well as you thought – particularly if your huge profits aren’t enough to overcome your high costs. If this is the case, you’ll need to speak with your bookkeeper about ways that you might be able to reduce your monthly outgoings and improve the safety of your overall business.
Planning Ahead is Essential
It’s crucial to get as much insight as possible into the future of your business when your aim is to properly manage cash flow. Cash flow forecasting is essential for most small businesses, as it helps them to better understand the situation that their company is currently in, as well as where it’s likely to move in the following months. While it’s difficult to predict exactly how much money you’re going to make each month, unless you have pre-standing orders that are sure to bring in a certain amount of cash, you can get a good idea of what you should expect by looking at previous months for help.
When you’re planning, make sure you remember that seasonality can be a factor for certain businesses. If you find that your company usually goes through dry patches during certain times of the year, then your aim should be to budget ahead for these periods and save back as much money as you can to cover those problems when and if they arise.
Make Invoicing and Collections Priorities
If you find that one of the biggest hurdles in your current cash flow situation is associated with invoicing and collections, then you’re going to need to take steps to push your clients into paying on time. If you find yourself going unpaid for long periods of time, then the chances are that you won’t have the capital required to keep pushing extra money into things like materials, products, and even staff members.
The best way to start overcoming this burden is to invoice your clients as quickly as possible – close to the original sale. Set up invoice reminders with a company like Xero, and make sure that your clients simply can’t forget to pay you.
Be Ready for the Unexpected
Finally, keep in mind that unexpected emergencies and expenses can occur for seemingly no reason – and with absolutely no warning. If you fall victim to an illness as a sole trader and you can no longer work, or your office is destroyed by a natural disaster, then you need to have a way to come back from that. Whether that means saving back cash in the hope of creating a financial cushion or having a succession plan in place – is up to you.
At the same time, remember to plan for positive surprises too – like sudden business growth thanks to marketing campaigns and other strategies. If demand for your product grows, then you’re going to want to be able to meet it!
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