Small business owners don’t need to hope for miracles to solve their cash flow problems. In fact, you have more control over your cash flow than you realize.
7 Techniques to Improve Your Cash Flow
Based on financial rescue missions and cash flow makeovers performed for scores of struggling small business owners, here are seven techniques that have an immediate and long-term impact in improving cash flow:
1. Avoid the common but deadly “Fly by the Seat of Your Pants” accounting method.
Businesses need to systematically track income, expenses, accounts receivable, and accounts payable. If you know how your business is doing just once a year at tax time, you’re bound to end up deeply mired in the Cash Flow Swamp.
2. Developing “Strength in Numbers.”
Once you have your accounting system in place, you need to learn what the numbers tell you and how to use those numbers to manage and grow your business.
3. Keep tight control of credit.
Business owners can land themselves in credit trouble in two ways: granting credit to problem customers of theirs and misusing credit they receive from banks, credit cards, and vendors.
4. Be sure receivables and payables “play nice” together.
The money owed to you by your customers needs to arrive in time for you to pay your vendors and your employees. When your customers take 60 days to pay and your vendors demand payment within 30 days, you can quickly end up in a cash flow crunch.
5. Make decisions based on cash flow, not just profit.
Many businesses that fail are profitable when the doors close. What those businesses are missing is cash. When you pursue that big, juicy contract or think about hiring another employee, always ask yourself, “What will this do to my cash flow?”
6. Don’t forget your debt to society.
Some bills are easy to forget… like sales tax, payroll taxes, and estimated taxes. Ignoring them doesn’t make them go away. Planning ahead makes the tax bite easier to manage and keeps you from suffering Tax Day sticker shock. Scrambling to find money for taxes causes major cash flow problems.
7. Don’t spend your company’s future on a speedboat.
Everybody loves toys. Just don’t make the mistake of considering all the profits of your business as “fun money.” You’ve undoubtedly heard personal financial planners say that you should have enough cash set aside for six months of expenses. This is true for your business, too. Sales ebb and flow. Expenses rise. Customers leave. Vehicles break down. Computers fry. The number one rule of small business is “Stuff Happens!” Having a reserve of cash keeps your cash flow from tanking every time a new challenge appears.
Recommended Books on Ways to Improve Your Cash Flow:
- Consistent Cash Flow
- Small Business Cash Flow: Strategies for Making Your Business a Financial Success
- CASH FLOW STRATEGY : How To Convert Your Ideas To Cash
- Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance
- Consistent Cash Flow
Article written by Caroline Jordan. Originally published on January 10, 2005