Did you know that cash flow problems are the reason 82% of businesses fail? If you want your company to be around in the long run, you need to get on top of your cash flow.
Many businesses overlook cash flow management and cannot effectively handle it. You don’t want to make this mistake as cash flow works as the blueprint of a company.
If you do it right, you’ll see many advantages of cash flow management. Here are seven steps to getting started.
1. Forecast Your Cash Flow
The best way to have successful cash flow management is by forecasting the future. Even guessing what the future is going to look like for your business is better than nothing. Guesswork can help with potential problems and fluctuations.
Take any factors into account that may affect your business within the next year. The most important factors to consider are:
- Political
- Economic
- Social
- Technological
- Legal
- Environmental
If other companies can affect your cash flow, look into them too. For example, you should look at your relationship with any partners or suppliers.
Consider how your clients will react to any of the above factors. Check past client patterns to get a good idea of how they will affect your cash flow this year.
Unless you are a new/startup company, you can look at past data that will shape your forecasting. Can you find any reasons for the low and high periods you experienced in the past?
If you are a newer company, you can look at data within the industry to identify the same things.
Forecasting involves planning for the things that are likely to happen to your business. However, you should also account for the unexpected.
What are unlikely actions that may take place? These could be devastating to your business so it is best to be prepared with a plan in mind.
2. Track and Review Your Progress
Knowing how to manage cash flow involves keeping track of the tools you implemented so that you can review them down the line. You should be monitoring your cash flow every day.
By having an eye on cash flow, you can detect problems early giving you a better chance of resolving any issue.
This is where your forecasting will come back into play. After getting an idea of how your cash is going to move during the year, you can review if your forecast was correct.
Chances are, you won’t be 100% right. Whether you were all the way off or just barely, you can use that information to improve the next forecast.
3. Send Invoices on Time
You won’t ever get paid on time if you cannot send invoices to clients on time. As a general rule of thumb, you should send invoices earlier than the payment date to ensure they are paid on time.
Doing this manually takes up a lot of time and effort. You’ll often run into more errors when trying to send invoices out. Instead, use software or an automated system that tracks and sends invoices to customers.
Even if you send things promptly, you’ll come to find clients still miss payments or often pay late. When this happens, you should deal with the issue as soon as possible.
Because of this, you’ll need to be on top of what is due and when. By knowing your customers, you can create better projections during the cash flow management process.
Get an idea of customer patterns. Who pays on time, who delays payments, and who pays late? By knowing this, you can guess how much income you’ll receive each month.
The best techniques to get paid on time to benefit business cash flow are:
- Sending reminders to clients
- Speaking to clients over the phone
- Revisiting expectations of the client
If you still cannot get a client to pay by following these cash flow tips, you should seek out a professional debt collector before too much time has passed. You can often recover a full invoice when less time has gone by.
4. Have a Clear Cash Management Policy
If you want to know how to calculate cash flow, you’ll need to have a solid cash management policy. This cash flow plan involves determining when bills will be paid and what method is used.
For example, you may only accept cash or checks compared to other options like credit cards. However, the more options you can allow, the more likely people will pay their invoices on time.
After deciding on these clear and specific terms, let your customers know. Don’t forget to stick to this policy to avoid confusion and loss of income.
5. Maintain Supplier Relationships
We’ve already noted that your suppliers can affect your cash flow, but how?
In some cases, you may come across financial challenges and need leeway because of a delayed or missed payment by a client. When you maintain your relationship with your supplier, they can trust your business when needing concessions.
The more you work with a supplier, the easier it will be to bargain with them. Maintaining a relationship with them can lead to extended payment terms down the line that can benefit you.
6. Check Financial Reports
One of the best cash flow tips is to produce and check financial reports regularly. Without a physical way to see your cash flow, you won’t know when a financial crisis arises.
A financial report can tell you if your sales are ahead or behind your forecasts. You can also find areas in the business that are underperforming or even ones that have increased.
With a financial report, you can see how current factors are truly affecting your business. This simple tip will provide you with the necessary knowledge it takes to understand every aspect of your business.
A financial report can help you control spending and effectively manage your cash flow. If you see unnecessary costs on your financial report, cut down to save.
When you have a grip on the costs coming from your business, cash flow management will be easy.
Financial reports come in many different forms. You can benefit from checking cash flow reports, balance sheets, sales reports, loss reports, forecasts, profit reports, and more.
7. Clear Out Your Inventory
Clearing out your inventory is a great way to begin your journey with a healthy cash flow. The best way to get your products out there is by offering discounts or promotions.
Discounts and promotions may sound counterintuitive to a successful cash flow management plan, but hear us out. These techniques are one of the best ways to boost sales fast!
Some unique options are to run a contest or create a customer loyalty program. When you are ready to clear out your inventory and gain quick and effective sales, employ discounts and planned promotions.
Benefits of Cash Flow Management
Cash flow is the lifeline of every business. When you are successful with cash flow management, you can experience major benefits.
One benefit is that you are guaranteed to have funds for operational reasons. With these funds, you are sure to meet any financial obligations, including the commitments you have with your supplier.
Without meeting financial commitments, you won’t maintain a proper relationship with suppliers. After reading the above steps, you should understand the importance of a good supplier relationship.
Along with paying your suppliers on time, you’ll have enough money to pay your employees and yourself on time. Without paid employees, your business won’t run for long.
Great staff is hard to find so don’t lose the ones you have by not being on top of cash flow.
When you implement a cash flow plan, you’ll have more peace of mind. As a business owner, the stresses of running out of money are overwhelming.
Not having that necessary peace of mind will affect how you run the business. If it’s up in the air whether or not the business will survive, not only will you be stressed but your staff will be too.
The best benefit of all is that you can grow your business when you have successful cash flow management!
Get on Top of Your Cash Flow Management
Without proper cash flow management, you can’t expect your business to be around long-term. Take a real interest in how much your business spends and on what. Then focus on how much money is coming in.
When you understand how your cash flow works, you can improve when necessary. With any business, there is always room for improvement!
Implement these steps now to get on top of your cash flow management. Don’t forget to come back to our blog for more business finance and personal finance articles.
