Cash flow management tips

It’s often said that cash flow is more important than assets when it comes to assessing how well your business is doing. That’s because the cash flow is a result of the actual work that your business does and it shows the money going in and coming out of your business showing the activity that it produces.

These tips will help you with cash flow management and make sure that you always have enough cash on hand to deal with your day to day operations and to keep the company functional if a crisis arises.

Monitoring

The first thing to know about fixing cash flow problems is that you need to keep monitoring your cash flow at all times in order to know where you stand. Every income you make and every purchase you make should be logged right away in order to have the data you need.

It’s also important to institute the review process that will allow you to see how the business is doing after a period of time. That should be done regardless of how well the company is doing and as a general rule.

Cutting costs

One of the ways to improve the cash flow management quickly is to be able to cut costs in a fast and efficient way. This is best done by making sure that you know which of your costs are important and which are essential. That will let you cut costs in a way that won’t jeopardize the business and allow it to work in a less capacity when needed.

Plans should be put in place to set up a bare bones version of your business that will work with cutting as much as you possibly can. That requires a lot of planning and foresight.

A line of credit

Borrowing is also an important way to get your cash flow problems in line and that’s better done with a line of credit than with borrowing a lump sum of money. A line of credit allows you to have the funds you need on hand but to use them only when you need them and in the amount that you need.

The interest rates may be a bit higher than they would be for borrowing a lump sum of money but there’s also more flexibility in terms of how you can use the money.

Lease equipment

Purchasing the equipment is probably the biggest expense you have as a business owner and you need to make this payment right away and before you’re able to actually make any profit. However, this also means that you also have less money to handle and use for day to day purposes.

One of the ways to avoid this is not to purchase the equipment but to lease it. That’s more expensive at first but it’s also a way to have more funds available at first and to be able to give up on some of the equipment when needed.

Invoicing

Invoicing is the process of obtaining your payments from the businesses and individuals that owe you money. This is a constant process for a small business and you’ll always wait for some payment from one of your supplier or the other. It’s important to have a system in place for this process.

The invoicing should focus on rewarding making payments on time as well as having penalties for those who are late. It’s fine to let go of some of the money you’re owed for the stability that comes with knowing that you’ll be paid on time.

Using the cash flow

One of the most important ways you could use your cash flow is to borrow against it. Knowing how much money you have and how big your turnout is allowing you to borrow while being able to prove how much you can repay and how fast.

This is a more important metric than the amount you have in assets and savings and the banks will adjust their rates accordingly. It’s important to keep this value of your cash flow in mind when organizing it because it can help you expand the business fast.

Conclusion

Cash flow refers to the amount of money going in and coming out of your business. That’s often a better metric for how good a company is doing than the amount of money that it has.  That’s because the cash flow shows how well a business operates and how active it is.

At the same time, you can use the cash flow to borrow money from a bank or another financial institution. It will also determine the rates on interest that you need to pay. Managing cash flow needs to be a constants process and one that you always improve on.