Getting your finances right is a big part of running a successful business, and cash flow is at the center of that struggle. Unfortunately, getting cash flow right is one of the biggest struggles every business faces. In fact, it’s one of the most common reasons that companies fail.
With how vital managing cash flow is for small businesses, you can’t afford to do things the wrong way. Follow the guide below to create a cash flow management strategy that works.
Set Spending Limits
Spend control is one of the most important things to nail when dealing with cash flow in a business. People don’t always track every purchase they make. It’s not an issue with large purchases, but smaller buys can add up in no time.
The problem is that it’s easy to dismiss small purchases as irrelevant. But if you aren’t careful, you can’t waste much of your monthly profit on things your business doesn’t need.
Set a spending limit on those purchases and track every single purchase made. Go through this list every month to determine what things to cut and if you need to slow down on smaller non-essential items.
Keep a Cash Reserve
You may be able to get away for some time by spending all the profit your company makes on growth. This is great for a short-term play, but it falls apart long-term when you experience problems.
You never know when you’ll face issues that require extra cash to take care of. At best, you’ll lose some productivity. At worst, you’ll put your company at risk of failure.
On top of that, you may not have the cash available to take advantage of new opportunities that need funding. That means fewer projects and chances for growth for your business.
Keep a cash reserve available to stay prepared for these issues.
Take on Smart Debt
It’s never a good idea to run your whole business using debt. One wrong turn can leave you with monthly payments you can’t afford. However, that doesn’t mean you should completely dismiss debt.
Debt can be great when you use it right. One wise use of debt is to take on new business opportunities. While you may be able to pay cash for products in some situations, others will require a much more significant investment.
Debt will let you take advantage of those situations. If you don’t want a loan hanging over your head, you can get a line of credit for the financing you need. That means you won’t make any interest payments unless you draw money from your credit line.
Going this route will help you grow your business faster than waiting until you have the cash to pay for everything without financing.
Track Unpaid Invoices
You’ll handle customer payments differently if you sell to other businesses. You don’t get paid upfront when selling products in many cases. Companies like to pay on net terms, which means you can wait several weeks or months to get paid.
Unfortunately, some companies will likely miss their invoice payment date and not send the money they owe. If you rely on those invoice payments to keep the lights on, that’s a problem.
Create a system to see every overdue invoice. Make it part of your routine to examine those invoices and reach out to the people who owe you money. Do everything possible to make sure your business gets paid.
Negotiate With Vendors
There will be some prices you can’t do anything about. Things like office supplies, product materials, and other common expenses will get priced based on the market. However, things are different when it comes to major utilities.
You may have the chance to negotiate your rates for things like your internet service, phone lines, insurance rates, and other large monthly expenses. Reach out to your vendors when you see price increases to see if you can do anything to lower your rates.
If a vendor doesn’t work for you and you’re committed to saving money where you can, then reach out to the competition to see what they can offer.
Some companies don’t prioritize talent when trying to gain profit in business. They think they can hire employees that don’t have as many skills and not pay as much. While this works in some cases, it will blow up in your face in others.
You’ll end up hiring people with poor customer service skills, high employee churn, and constantly spending money on hiring. It makes more sense to hire people who are great at their jobs instead of dealing with people who don’t have much to offer.
Hiring the best people means you’ll work with people who know how to help you grow your company. You’ll likely earn more profit from your hires than you would save by paying too little money for talent.
Hire a Professional
You can do a lot on your own when handling your company’s finances. Things aren’t as complex initially, so it makes sense to keep things simple and less expensive by running things yourself.
However, your finances will get more complicated as your business grows. Without a background in finance, you may not know all the ins and outs of handling company finances.
That’s where it pays to turn to a professional to get help. Whether you hire an accountant or outsource the chief financial officer role, look for help managing your books. Read more here on how a professional can help.
Now You Know What Managing Cash Flow Takes
With cash flow being one of the biggest reasons for business failure, you can’t afford to cut corners and handle cash flow incorrectly. However, you now have more tips that will help you learn how to manage cash flow. Keep them in mind when managing cash flow for your business to ensure you keep money in the bank for any situation.
Do you want more advice that will help you build your startup business? Check out the blog for more tips that cover everything from launching a business to scaling to a global brand.