What is cash flow? It’s a simple concept to understand; you’re looking at the flow of cash within your business. So, where is money coming from and where is it going? Primarily, you’re looking to track your expenses and income, weighing them up against one another. A healthy cash flow is one where there’s more than enough money entering your business to deal with all the payments going out of it.
Therefore, managing your cash flow is critical. How can your small business do it? Let’s look at a few ideas to help out:
Keep everything updated
The biggest cash flow mistake is getting lazy when managing your books. You need to have updated accounts of all the financial happenings as they happen in your company. This prevents instances where you think your cash flow is great, only to realise you forgot to make a note of some considerable expenses you made. The more updated your records are, the more accurately you can manage things.
Make accounting as easy as possible
Let’s be honest, accounting is pretty hard work. For the average person, the ins and outs of accounting just do not register. So, if you want to keep your accounting as easy as possible, there are two clear options. To begin, you could hire a full-time accountant to work for you and handle all of this behind your back. It’s a viable option, but it can be very expensive. The second option is much more cost-effective, and it’s simply a case of downloading some accounting software. There’s a lot of software out there like this, all of which should make it easier to manage your books. You have all of your financial data in one place, you can set up instant alerts for when money is spent or gained, etc. Both options help you manage cash flow by making your life easier than ever before.
Demand invoice payments
Sending invoices is a lot of bother, particularly as your clients can take a long time to pay them. Unpaid invoices are a huge issue for businesses as you’ve basically got money that you can’t access. It’s rightfully yours, but it isn’t in your account as the client hasn’t paid. This can cause all sorts of cash flow issues as your expenses keep on mounting but you have nothing to combat them with. Thus, you need to encourage clients to pay your invoices as soon as possible.
Don’t mix business with your personal life
Finally, always keep your business and personal accounts separate from one another. Mixing the two together is a recipe for disaster. It’ll be impossible to track anything, making you wonder which expenses are personal and which ones are for your business.
Generally, you can measure the success of a business based on its cash flow. It’s rare to see businesses with a positive cash flow that aren’t flying high. This is because it means you have more cash entering your business than you have leaving it. Use the tips in this guide to start managing cash flow more effectively, improving your financial standing.