Do you struggle to manage cash flow for your business? You’re not alone. Back in 2019, the research found that 61% of small businesses struggled with cash flow, and 32% couldn’t pay themselves, their employees, or their vendors. In addition, the last several years have created additional financial challenges for many small businesses.
If you’re looking for help managing your business cash flow, the following 10 tips can help.
1. Create a budget
I’m sure you’ve heard the importance of having a budget for your personal finances.
Dave Ramsey has an often-referenced quote: “A budget is telling your money where to go instead of wondering where it went.” And that’s exactly what you want to do with your business money—tell it where to go.
Create a budget for your income and expenses. This will help you see where your money is going so you can make wise financial decisions. Seeing your spending categories may help you identify areas where you can cut back, as well as changes you can make to start bringing more money in.
2. Track your expenses
Creating a budget isn’t enough. Once you have your business budget in place, it’s essential that you continue tracking your expenses. This will help you identify areas to pivot or where to increase or decrease spending. Your budget will constantly change as a growing business, meaning you can’t simply fix it and forget it.
3. Invoice promptly
Send your invoices on time. Delaying in sending invoices after you deliver your product or service is also delaying the process of receiving the money owed to you. If finances are tight within the business, even delaying invoicing a few days can cause unnecessary financial headaches.
Create a system and automate what you can in accounts receivables to make the invoicing process simpler and faster.
4. Keep an eye on accounts payable
You must clearly understand your accounts payable, who you owe money to, how much, and when it’s due. Paying late on your invoices can hurt your credit score and the relationship you have with suppliers. Too many late payments and you may find suppliers will refuse to work with you or demand payment upfront, which can be challenging for a small business.
5. Keep an eye on accounts receivable
You also want to ensure your clients are paying on time. Staying on top of late invoices can be the difference in easily making payroll or struggling to figure out where the cash is going to come from to keep your employees paid. This is another area where it helps to have a system in place. For example, schedule reminders to send on unpaid invoices so clients are reminded about their balance without taking extra time from your schedule.
6. Keep cash reserves
You may have heard personal finance experts encourage people to have emergency funds for their finances. This is money kept in an easily accessible account that you can access in case of a financial emergency. This money is separate from the money you have for your other savings goals.
You want to have the same for your business. Keeping easy access to cash reserves can help you keep your business running in the case of unexpected expenses or unpaid balances from clients.
7. Reiew your financial statements
As a small business owner, it’s crucial that you know how to read and understand your financial statements, like your balance sheet and income statement. These reports should be reviewed on a regular basis to help you identify trends and make necessary adjustments.
As business coaches, when we begin working with small business owners, we have found many don’t understand what reports to look at or how to read them. Don’t feel ashamed if you don’t understand and stay stuck. Instead, take action so you can gain a better understanding.
8. Seek advice
Working with a financial advisor or accountant can help you understand the financial situation of your business. They can help you make better decisions to help you manage your cash flow more efficiently. Get support and ask questions to get the help you need.
9. Manage your inventory
You don’t want to have too much cash tied up in carrying too much inventory. Having a clear understanding of how much inventory you need can help you improve your cash flow. Be mindful of what you need on hand and your process for purchasing when necessary.
10. Consider financing options
Many financial options are available for small businesses, including lines of credit, loans, and even crowdfunding, that can help manage cash flow gaps. If you’re struggling with cash flow, talk to a professional to explore your options, but make sure you clearly understand the impact the financing will have on your business cash flow going forward.
Are you looking for help to manage your cash flow and scale your business?
Spearity business coaches can help you overcome the obstacles standing in the way of scaling your business. Contact us today to explore your best options, including group coaching, team coaching, and business consulting.