Why Managing Cash Flow Is Important for Every Small Business

Taxes

Nov 22

Cash flow is the incoming and outgoing cash from any business and is representative of the operating activities of the company. Every entrepreneur and small business owner instinctively knows that cash flow management is very important to keeping their business successful. Many startups fail because they don’t have a health cash flow.

For a small business to be healthy it is essential for it to keep track of its cash flow and have a grip on the expenses and income. Here are some things a new entrepreneur should do to be in charge of the cash flow situation of their business.

Planning ahead

Having a forecast that lists all costs expected and income each month is essential for every small business. It is important to include all items even if they seem relatively small and also be aware of any seasonal variations that may occur in your monthly forecast. Talking to an expert if you are unable to formulate a plan on your own can be a good idea.

Be regular and fast with invoices

Remember that an invoice delayed is a payment delayed. Send out invoices swiftly and set up payment terms with your clients at the beginning of the business relationship. Be prepared to charge late fees or interest on overdue payments. Other alternatives include having options such as preordering and advance payment or an early payment discount that could influence clients to pay up earlier.

Inventory management

Managing your business’ inventory well is another way of keeping cash flow under control. Holding too much inventory can become a hurdle. Monitor all stock records to keep track of inventory available.

Maintain a good relationship with your bank

Having a good banking partner can be very important to a start-up or even an older small business. A good bank will help your business by sanctioning overdrafts and credit lines when you need them. Keep communication open with the bank and stay in their good books during the other times.

Use technology to keep track of cash flow

While keeping an eye on the books is a way to maintain control over the cash flow situation of any business it can also be helpful to use technology to keep track of the incoming and outgoing cash. There are online and mobile tools available for this purpose and using them when the company is small can help the transition as the business grows bigger.