To understand cash flow, begin by learning what it isn’t. Cash flow doesn’t mean ‘profit’ nor ‘working capital’. So, what is cash flow? It’s the total amount of money flowing in and out of your business. When more money is flowing in than out, you have positive cash flow. When more money is flowing out than in, you have negative cash flow. In the months to come, each company should follow its cash flow in a very tight way, and companies should have a look at how they can build some business reserves to endure any further disruptions.
Managing cash flow is one of the toughest chapters for a small business owner, but it is also one of the most important metrics to follow – especially when it comes to forecasting the future growth of your business. If you want to improve cash flow, think about implementing some of the following tips.
- Organize your books
When your books are disorganized, you don’t know how much income you’ve got, coming in, what your expenses are or if you’re making a profit. Once your books are in good order, you’ll be able to stay on top of how much each customer owes you and whether they’re paying you on time. If you are struggling with the organization of your books and finances, seek help and contact a part-time financial manager.
- Forecast your Cash Flow
Cash flow forecasting is the process of estimating your future financial position. It is the fuel that helps your business to grow. The money that comes in, gets allocated to your employees, suppliers and other expenses. If you don’t know what the future holds, then you’ll have a hard time planning your investments and taking advantage of promising opportunities. With a cash flow forecast, you’ll be able to see which months you can expect to see a cash deficit, and which months you can expect a surplus. You’ll also be able to get a pretty good idea of how much cash your business is going to require over the next year or so to survive. Having this information in mind, you can estimate how to spread out big purchases and investments such as; staff hiring, marketing campaigns or purchasing equipment, so your cash flow is not affected. Have several cashflow forecasts with several different scenarios, if something not forecast happens you will already have a solution.
- Keep on the top of Invoicing
If you’ve ever experienced late payment, you’re not alone. According to research, 64% of small business owners face late payment problems. But if late payment becomes a recurring habit it can be problematic and you won’t be able to work on growing your business. Efficient invoicing is a must for small businesses looking to maintain steady cash flow. You should send your invoices as soon as possible, be clear on your payment terms and follow up on unpaid invoices as soon as they become overdue.
- Get rid of Bad Debts
Bad debts are amounts owed by customers that cannot be recovered.
If late payment causes a cash flow headache, then bad debt can be a nightmare. Unfortunately, this is all too common for small businesses and can be a significant risk to your cash flow.
You can hire a Debt collector, they will take a commission if they are
successful to have your clients pay.
If your receivables are difficult to collect, it could be beneficial to outsource an agency or part-time finance manager to follow your financial books and warn you on time. http://www.ctconsultancyuae.com/. These companies will remove the burden from your business.