Your small business should be able to monitor its cash flow. This is the lifeblood of any business; without it, you’ll never know how much revenue is coming in and what resources you are spending.
The good news is that cash flow management isn’t hard to do if you have the right systems in place. Here are some tips for getting started:
4 Ways to Improve Cash Flow Management
1. Draft a reasonable budget.
You may need to create a short-term and long-term budget for your company. A short-term budget will help you determine whether or not you have enough money to pay bills this month or next month (or even later).
A long-term budget will show where your company is headed over time so that you can make informed decisions about investments and whether or not those investments will make sense for your company in the future.
2. Track your spending.
Online tools such as Xero or QuickBooks make it easy to see where money is going and coming from. These tools will allow you to understand better where resources are being spent and whether or not you should spend them differently.
3. Prepare for the unexpected.
Small businesses are often in the habit of preparing for the long term — they plan budgets, prepare their tax returns, and ensure they have enough cash to pay bills and meet payroll. But these practices actually do more harm than good to your short-term cash flow needs.
Instead, focus on getting ready before the next payment or tax filing deadline. It’s much easier to make a few adjustments now than after you’ve missed one payment or filed an inaccurate tax return because you didn’t have enough information at hand when it mattered most.
4. Make data-driven decisions
It’s also important to analyze your finances regularly and make decisions based on that analysis rather than what someone tells you should be happening or not happening.
For example, if sales are down compared with last year but margins are up, do something about it: Lay off employees or cut costs elsewhere — but only if there’s a clear reason behind it (e.g., employees aren’t performing well).
Remember,
Cash management is how you manage your business’ money. It’s not just about having enough on hand to pay bills or make purchases.
It’s also about knowing your cash position at any given time and identifying opportunities to increase that position to take advantage of opportunities — like selling more products at lower prices or getting more customers by offering discounts and promotions.
But it takes time and practice to master cash flow management, don’t give up if it doesn’t come to you on your first attempt.