One of the biggest risks to any small business is a lack of capital. In order for a company to grow and succeed, it needs cash to pay for common expenses such as rent, inventory, employee payroll and insurance. A dwindling cash flow can cause a business to close its doors for good. Successful cash management can help prevent this from happening. This Balboa Capital blog article features an overview of cash flow and how it influences businesses, as well as some tips on how to maintain a positive cash flow. We think you will find this information to be very helpful.
Cash flow, defined.
Cash flow is the money that moves in and out of your company during a specific period. You can measure your cash flow on a monthly, quarterly and yearly basis 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 company has a positive cash flow? Let us say 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 company moving in the right direction and reduce the stress that can result from financial uncertainty. It can also enable you to save capital for the future. Having an adequate amount of capital in the bank enables you to weather unexpected slow sales periods and 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A slow or outdated billing system can turn your company’s finances upside-down. For example, if your accounting team is not sending out invoices in a prompt manner, 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 system, such as cloud-based software, and best practices that can be found in books and online.
Once you have the right 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 at 30 days and get a specific date in which the payment can be expected in writing. Keep detailed notes in case you end up having to proceed with collections.
Reduce your expenses.
Many business owners wait until it is too late to stop spending money on lavish offices and expensive business dinners, among others. These things can really add up and take a bite out of your existing capital. Reducing unnecessary expenses is a sound idea because it allows you to save cash for more important business needs. Examine your monthly expense reports to determine what can be reduced, or eliminated altogether.