Whether you are struggling with this pandemic or growing in it, cash flow management for any small business is important. Without it, you have no clue where your money is going and you’ll be unable to control it. On top of that, you’ll also be unaware of where your income sources are and how much each one is contributing to your company.
It’s for this reason that cash flow mismanagement is one of the big reasons for small business failing. With this in mind, here are some of our tips for small businesses to better manage their cash flow. Through these tips, you’ll be able to improve the cash flow of your business.
Use Accounting Software
Or if you are strapped for cash a detailed spreadsheet can work too. Nevertheless, recording the transactions in some fashion will make it easier to manage. It’ll be even easier through a computer program.
Fortunately, there are tonnes of free resources out there to help you with accounting and other business functions. In terms of accounting software, you can check an open-source accounting program like Wave or GnuCash to cover your accounting needs.
Make Sure Your Cash Is Still Working For You
The best kind of way to earn money is money you can make while you sleep. As such, make sure that your money is stored in something that builds interest over time. You probably have personal accounts already, but are you aware of business interest-bearing accounts? Ask your bank if they have one available and take advantage of that.
Just make sure that the account is an immediate-access account. Many business owners make the mistake of opening a 30-day or 60-day CD bond account and are locked into it.
Make Payments As Late As Possible
One common mistake business make is paying for expenses within short periods of time. While there are advantages to those kinds of things (such as discounts), you may actually be able to save more by delaying the payments as late as possible.
Remember that the longer cash is in your account, the more interest you can accumulate. And with digital banking you can set up direct deposits for recurring expenses on the final day they are due. What this means is you’ve earned more interest and you still pay your bill on time with no late fees on them.
Spread Out Expenses
While it might be easier for you to pay all of your expenses on a certain day of the week or month, it’s not ideal for cash management. As mentioned above, digital banking has made cash management way easier by allowing you to set up automatic payments. With that in mind, you can spread out your expenses without any worry and that can free up more cash flow for you.
Manage Inventory Better
Inventory can be sometimes tricky to convert into cash if you’re in a state of financial emergency. As such, it’s important that you keep inventory as low as possible. One way that you can manage inventory in a pinch is turning it back over to suppliers as some may have refund policies.
Reduce Cash Outflow
This is an obvious one we know, but there are tonne of ways you can manage your cash flow this way. If you have a tendency of replacing equipment when it stops working, look into finding a way to fix it. You especially want to do this is the equipment or item is expensive.
Some other considerations are to look for used or reconditioned supplies and equipment if you need it for daily operations.
If you’re thinking of upgrading products or looking for services or other things that can improve your business, spend some time in considering the cost implications. Sometimes you can find free alternatives that can give you similar results. Or maybe you’ll be able to barter with suppliers or other people in some way.
Have An Emergency Plan
The last tip we have is to have an emergency plan. Like COVID-19, things can take a drastic turn for the worse and you need to be prepared as much as you can. In business, this means having an emergency backup plan.
One avenue is relying on a business line of credit. If you feel you need it, make sure you have a good business credit score so you can get that emergency funding. You can also consider a business credit card as well which can further cushion you too.
It’s not difficult to manage your cash flow. All you need is some critical thinking and to ensure that things can continue to run smoothly. These tips mentioned above are small steps to take that can help you out in a big way when you are dealing with the ups and downs of business. So be sure to keep these tips in mind and you’ll have a better grasp of your business.