Cash Flow: Everything It Means for Your Business
Managing your finances is the most important part of starting your business. Many new business owners tend to think in terms of profits and forget about the gap that can occur between needing to pay suppliers and employees and when customers pay them. To ensure your company continues to thrive, you must know how to manage its cash flow.
Create and Measure Plans
A business owner always needs to have plans for how to measure his or her company’s money. You should always have a cash flow plan for the entire year, although some experts believe you should have one for each quarter, too. If you think your company might be in trouble, you might even want to create one for each week. The plan should include an educated guess at how much your customers will pay you in the time frame as well as how much you’ll need to pay out. Don’t forget about any interest on loans and consider the fact that some customers may not pay on time.
Manage Your Payables
Of course, the plan requires you to look at your payables more closely. Watch your expenses very carefully, even when you think everything is going well. You can make money stretch in several ways. First, don’t pay creditors too early. If you have 30 days to make a payment, wait until the 29th or 30th day instead of paying early and risking running out of money. If you find yourself in financial trouble, communicate with your vendors. They may have ways to help you. Look for vendors that offer flexible payment options even if the price isn’t the lowest.
Check Out the Receivables
If you can, find ways to improve your receivables. The easiest way to do this is to entice your customers to pay their bills more quickly by offering discounts. If you sell big-ticket items or services, you can also require deposits. Other options include selling old inventory at discounted rates, requiring credit checks for non-cash customers and implementing a cash-on-delivery policy for customers you identify as slow to pay.
Finally, understand that things happen. No matter how well a business owner plans cash flow, sometimes emergencies occur, and shortfalls are the result. Consider your options ahead of time, such as applying for a line of credit that you save for emergencies or using invoice factoring to bring in a percentage of unpaid invoices. Above all else, remember that your employees come first. Always pay them first even when you’re short on cash.
