Manage your cash flow or else! I’m sure you’ve heard this saying before in podcasts or read it in business books, but what do the experts mean and what are the first steps to better managing your flow?
Here are a few easy ways to make cash management a part of your routine.
Review your cash flows regularly
I suggest performing a weekly cash flow analysis to start, but I know some businesses that are so active they need to look at it daily. Depending on your business model set aside time at a frequency that feels right. It may not be the sexiest part of being an entrepreneur, but it is one of the most important parts. Sit down with your latest cash flow statement and do a few things:
Look ahead. Will you be in a good situation one week, one month, and two months from now? Will you be able to cover your expenses and bills? Or do you see trouble on the horizon?
Look back. Are you owed outstanding payments? Did you have a slow month that will throw off your current month? What happened last week, last month, and two months ago that can impact how you manage your business today
Plan for growth. A cash flow statement allows a business to see inflows and outflows. On its own, a cash flow statement will not provide the whole picture, it does offer a quick view of whether you can self-fund your growth. Many profitable (and growing) businesses go under because their outflows grow faster than they can collect from customers.
Make data-driven business decisions
Once you sit down with your cash flow statement and look at the key items listed above, then what? Let this knowledge guide your business decisions.
If you see trouble on the horizon, think about short-term decisions to right the ship. For example:
- focus on driving sales that will secure upfront payment and quick turnaround;
- assess how you can lower overhead through quieter periods; and
- limit free work or slower paying projects
If your cash flow is bountiful and steady–nice work! This is a good time to think about how you can innovate and invest to take your business to the next level. You can afford to take some new risks.
Implement cash flow hacks
Here are some quick and easy cash flow hacks that will help you overcome common cash flow headaches that all small business owners encounter.
Turn services into products. Productize your services and it will allow you to get paid upfront and structure your income in a more predictable way. Set up new business in a way that you see payment before you begin work.
Slow down accounts payable. Large companies do it all the time. They make small businesses wait 30 to 90 days to see payment (horrible, I know!). But there is something to be gleaned. If you need to delay payments to partners and contractors in order to keep cash in the bank and get through a tight cash flow period it’s okay to do it once in a while. Be sure to communicate the terms early and follow up with the payment on an agreed timeline.
Keep a backup credit card. You should have a credit card that you don’t use regulary. Keep it handy and at zero balance. It will be there when you need it.
This article originally appeared in YFS Magazine on June 12, 2018