If you run a business, and you want to keep it afloat, then you need some strategies and practices that can help you in tracking, analyzing, and improving your finances. These practices and strategies are what is called Cash Flow Management. Cash flow management’s goal is to help you have more money coming in than going out. In order to successfully manage your finances, you need to balance between accounts receivable, account payable, and shortfalls.
Read on if you want to learn more about how to efficiently manage your company’s cash flow.
Calculate how much time and money you need to reach your break-even point. Once you go over it, then you are on the right track. However, if you regularly fail to meet your break-even point, then there is a problem that needs addressing. As a business owner, it is crucial to conduct a break-even analysis, so you can set your prices and forecast when your business will become profitable.
You should have an extra emergency fund that can cover your business expenses for at least three to six months. That way, your business can securely manage to stay afloat even in the case of an economic downturn. Some business owners resort to using credit cards, but that is not a good idea. It is better to keep an emergency cash reserve to grant you flexibility and security when needed till you make a profit again.
As every business has its own back office and financial needs, you need to hire someone to monitor your finances and cash flow. No matter the size of the business you are running as an entrepreneur, you should build and implement strong financial management for your business. If you own a start-up or a small business, then you are ready for a part-time CFO, which will give you all the advantages of their expertise without having to pay an enormous amount of money. However, if you own a big company, then a full-time CFO is right for you.
Hiring qualified new staff members and buying durable, productive equipment eventually leads to higher profits and more money coming in. Although it sounds costly, such investments can help in building an emergency cash reserve and is proven to be profitable in the long run. As a successful entrepreneur, you should think and act ahead of time. Professional Development
Investing in your employees’ professional development by giving them training that adds to their skills & keeps them up to date with new techniques and methods is very beneficial.
The happiness of your employees will reflect on the work done and will also create loyalty to your company. Fair salaries and an understanding boss will work wonders. Also, organizing fun events throughout the year is a good idea, and can help in building a stable and happy working environment.
There might be some inefficiencies that get in the way of having smooth cash flow, so locate these inefficiencies and eliminate them, as even small ones can lead to big losses in the long run. You need to make sure that you are not spending unnecessary money by monitoring your overheads and selling outdated assets. This way, you can reinvest in your business using that extra money.
Note that profit is not the only sign of entrepreneurial success, like the way you manage your cash flow is also the key to success. Keep comparing your earnings against your break-even point, and if the money feels tight, even if you are earning more money, then most likely there is an issue with your accounts receivable, accounts payable, or shortfalls.
You can speed up your payments by asking for an upfront payment before the work is completed or even before it starts. Also, you can offer special deals and discounts for early payments. Encouraging your customers to pay early is one of the most effective cash flow management techniques. Remember that IOUs are virtually the same as not having money.
There are many ways to market your product or service, and nowadays, you can find many affordable ways to market your business, like social media marketing campaigns, which are free of charge. Getting creative with marketing and investing in it will definitely increase your cash flow. If you own a big business and can afford to pay for expensive campaigns, then you can go for TV and radio commercials. Investing in marketing is something every business has to do.
A poor cash flow management system will eventually lead to ruining your business. Operating with a negative cash flow leads to pulling money from your business’s cash reserve to pay debts and expenses, so you will end up losing money rather than making a profit and growing your business. This can be avoided if you, as an entrepreneur, implemented an efficient cash flow management plan. As mentioned above, efficient cash flow management is the key to success in any business.