You are now an entrepreneur. You are providing a service or product. Your clientele is a reasonable size. But wait, you are always concerned about how to cover your business expenses before the bank charges overdraft fees. This scenario is not unusual for businesses. Many business owners then focus on getting more clients but do not realize this scenario might not turn into cash for the business.
How do you identify your cash problem?
The cash flow statement will tell you. The statement is a financial report that describes the cash in and cash spent over a specific time. A key reason to generate a cash flow is to determine an organization’s ability to pay the bills. Secondly, a cash flow allows you to visualize the timing of the cash coming in. It’s recommended a cash flow is performed on a quarterly basis due to the high importance. If your organization struggle with paying bills a monthly cash flow should be utilized.
Key elements of a cash flow are:
Accounts Receivable | What customers owe you
Accounts Payable | What you owe your suppliers or vendors
How do you manage cash?
Here are a few tips to help you manage your cash flow:
#1: Keep an eye on your accounts receivable. Review weekly to verify which customers are not paying. Encourage them to pay ASAP.
#2: Manage your accounts payable. If there are bills you can not pay by the due date contact the vendor to make arrangements. Extend your payables to net-60 or net-90 if you can.
#3: Make it convenient for customers to pay. There are several ways to collect payments such as ACH, check, credit card, Paypal, Square. Before deciding on a method to verify the charges you might incur because this is an expense will eat into your profit.
#4: Keep a cash flow spreadsheet. SCORE has a very simple spreadsheet. Update on a weekly or bi-weekly basis until you feel comfortable with it then delegate to a staff member to complete for you.
#5: Focus on Cash Management, not Revenue. This task is a game changer. To grow your company or invest in other opportunities you need cash.
#6: Build a reserve. Transfer ten percent of monthly sales to an account you cannot reach easily. The reserve can be used if you have a cash shortfall.
#7: Your business can survive. Schedule 30 minutes a week to update and review your cash flow. If you put in the time you will see growth in your business.