Getting a firm grip on your cash flow isn’t always about checking your Profit & Loss statement. Your cash flow is determined by a number of other financial factors like that of the accounts payable, capital
expenditures, inventory, taxation, and accounts receivable.
All of these cash drivers need special attention from the business owner for ensuring effective finance management using traditional excel sheets or cash flow management software. It won’t help if you’re only checking the figures of your profit and loss. You’ll know how to resolve your cash flow issues soon after you gain more knowledge on your cash flow basics.
The industry experts offer multiple tips to guide you in fixing your cash flow issues more quickly.
Few good ways to maintain a healthier cash flow for your business:
Take precautions by identifying your business risks
You may have kept a record of all your cash inflows within a spreadsheet. You must consider removing or adding inflows just to create a hypothetical situation. You’ll gain an immediate visibility of all repercussions that follow your activities during the coming months. It will give you the opportunity to determine your plan of action as and when you experience such a situation. You may consider
checking out a few cash flow management sheets that are maintained in excel files.
Maintain a business bank account separately
Many business owners tend to mix their credit cards, personal bank accounts, and other necessities. This is a common thing for all startups throughout their initial phase. Identifying such mistakes tends to become easier when you utilize your personal savings for that initial financing. Fund management professionals like Lincoln Frost would probably suggest that you maintain a separate bank account for your startup. You may request a credit card from your bank, use it for paying off your business expenses and pay it off with your business account.
Inventory has to be monitored efficiently
Your inventory movement has to be analyzed with time. It will help you identify items that are not so productive and are instead soaking up your capital fund. If required, you may consider acquiring quick cash by selling your unused assets and equipment. Get your inventory levels swayed so that the working capital remains free to be vested in lucrative opportunities more productively. By searching online, you’re bound to come across a number of good inventory management resources.
Extra money needs to be allocated
Your business will need substantial cash for funding all needs after you have identified the breakeven point. In order to cope with a bad patch, you’ll need to create cash fund for outgoings worth three months. A certain buffer will come in handy under all adverse situations. It could either be some revolving credit benefit or an easy accessibility to your personal funds.
Allow your cash to grow
Choose accounts that earn good interests for saving your cash balances. Most banks can provide you with such accounts, although some of them can make it mandatory for you to maintain a certain balance. Consider a few high-paying funds for saving much of your funds. You may then get the funds transferred for meeting the mandatory minimum balance criteria of your profitable checking account. Add to this the sum of money payable for that particular month or week.
Lay stress on the cash flow instead of your profit. Your profit is bound to remain in order if your cash flow is maintained properly. Many businesses don’t even survive for the first six months. Even the
most profitable businesses need to ensure a smooth cash flow in order to sustain in the long run.