It might not seem like managing the cash flow of your business could make or break you, but it’s one of the most common reasons why businesses fail.
You might think that as long as sales are good and you’re turning a profit, things are just fine. But the reality is that even if your business is profitable, poor cash-flow management can hinder your success.
What is cash flow?
Put simply, cash flow is the amount of money you owe, how much money is owed to you, how much money you have in the bank and how it all moves each month.
Five tips for cash flow management
Because cash flow is such an important component to a healthy business, consider these strategies for managing your cash flow and strengthening your operations.
Keep sufficient cash reserves
Have a three- to six-month cash reserve to help your business cover slow times or other unforeseen circumstances.
Keep inventory lean
Excess inventory is a drain on the budget. Weigh the savings from discounts or other purchasing incentives for buying in volume against the cost of having idle inventory. Order only what you need to serve your customers.
Run a tight ship with invoicing and collections
Keep careful records of your billings and follow up on unpaid invoices. It might feel uncomfortable to pressure your clients to pay, but you provided a product or service in good faith. You should expect your clients to pay for your work.
Even when you’re making sales, don’t get sloppy with your spending. Make sure that all your costs — supplies, inventory, salaries — are necessary and ultimately contribute to the health of your business.
Extend credit with caution
If you allow clients to pay for your product or service over time, you might want to have a credit approval process to ensure clients are good for the money.
By monitoring your cash flow management, you’ll have a healthier business that is prepared to withstand the ups and downs of the marketplace. And you’ll sleep better at night.
Learn more on how you can maximize your money management.