One of the biggest risks to any small business is a lack of capital. To grow and succeed, it needs cash to pay for everyday expenses such as rent, inventory, employee payroll, and insurance. A dwindling cash flow can cause a business to close its doors. Successful cash management can help prevent this from happening. This Balboa Capital blog article features an overview of cash flow and includes some tips on how to maintain a positive cash flow. We think you will find this information to be very helpful.
What is cash flow?
Cash flow is the money that moves in and out of your small business during a specific period. You can measure your cash flow monthly, quarterly, and yearly to see how you are doing. To calculate your cash flow, subtract your monthly ending balance from your starting balance. So, how do you know if your business has a positive cash flow? Here is an example: If you have $25,000 in available cash on July 1st and $65,000 on October 1st, this equates to a positive cash flow of $40,000 for the quarter.
A positive cash flow can keep your small business moving in the right direction and reduce financial uncertainty. It can also enable you to save capital for the future. In addition, having an adequate amount of money in the bank allows you to weather unexpected slow sales periods or emergencies. Plus, it prepares you for success when applying for a small business loan or other business financing product.
Streamline your billing system.
A slow or outdated billing system can turn your business’s finances upside-down. For example, if your accounting team is not sending out invoices promptly, there will be a delay in collecting your receivables. This can affect your cash flow and your bottom line. Look at ways to streamline your billing systems, such as cloud-based software and best practices found in books and online.
Once you have the proper protocols in place, your accounting department will be more productive and efficient, and the amount of time it takes for your receivables to be paid will decrease. Lastly, stay on top of late-paying customers and vendors. Call them within 30 days and get a specific date for the payment to be expected in writing. Keep detailed notes in case you end up having to proceed with collections.
Reduce your business expenses.
Many business owners wait until it is too late to stop spending money on lavish offices and expensive business dinners. These things can add up and take a bite out of your existing capital. Reducing unnecessary spending is a sound idea because it saves cash for more critical business needs. Examine your monthly expense reports to determine what can be reduced or eliminated.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.