Small business owners contend with a host of problems on a regular basis. Now, more than ever, businesses are challenged to deliver services and products which can satisfy impatient customers and motivate discontent employees, while remaining cost effective. Understanding and managing your cash flow is essential to success of small business.
Cash flow is simply a snapshot of a business’ finances during a given time period, including the money flowing into and out of the business. This is usually done on a monthly basis, but can also be done over other time periods, such as weekly or quarterly. A goal for a successful business is to remain cash flow positive with the ability to compensate for short or long-term disruptions in that cash flow.
After analyzing your business cash flow, if it isn’t consistently positive, here are a few tips to improve cash flow:
- Anticipate future needs: Keep accurate accounting records, as they will provide you an understanding of your business’s financial position. Use past cash flow information to project pro forma statements for the next three to six months. The pro forma statements can then help you be prepared in advance of any shortfalls, and give you the time to be prepared for them.
- Build Connections with lenders: Build connections in the banking community before you need help.
- Keep Your Cash Working: Keep your cash balances in interest earning accounts.
- Train your customers: Invoice customers the day you deliver your service or product, noting, “Payment is due on receipt.” Offer a variety of payment options if your customers have difficulty paying, including credit card charges, and payment plans.
- Work with your Vendors: Slow the outflow of cash to your vendors, delaying payments as long as possible while avoiding penalties for late payments.
- Increase margins: Maximize cash inflows (credit cards ensure timely payments) and shrink cash outflows (cutting and avoid expenses overall and delaying payments as long as possible).
Consider which of these tips makes the most sense for your business. Working capital is the fuel that powers your business and will leave you better equipped to maintain and grow your enterprise. For additional or more specific information contact a small business lender at Cornhusker Bank.