Trying to run a business without learning how to manage cash flow in businesses is like trying to row a boat without a paddle. Even if you succeed, it will be a tiring exercise that will wear you out. Cash flow is important for all businesses, but it is essential for startups and small businesses. If you cannot manage cash flow in the first year, you will probably not survive the second.
What is Cash Flow?
Cash flow is an extremely important tool for controlling finances as it allows the monitoring of cash inflows and outflows in the company (capital movements) over a given period of time. This makes it easier to organize spending and make efficient business management.
The three main elements of your cash flow in businesses include:
- Accounts receivable: what customers owe you?
- Accounts payable: what you owe your suppliers;
- Difficulties: You hope you don’t have, but they can happen.
You must effectively manage all three if you want to run your business successfully. Of course, the best direction for rowing a canoe is downstream. You go faster and don’t get tired.
Similarly, your business will be healthier if you learn how to organize your cash flow toward the profit line. And in this post, we have some tips to manage cash flow boat successfully.
Tips to manage cash flow in businesses on track:
- Record and categorize all movements – Whatever the amount spent or received, it is very important to record them all. That way you can organize your accounts the right way and avoid wasting money. It is essential to separate everything into different categories so that it is easier to identify the main types of spending and revenue and where they come from. It is not worth putting only “expenses” and “earnings”, as you will not know how you used the resources or the source of the income.
- Check Cash flow daily – Keeping track of cash flow movements on a daily basis helps to avoid surprises. After all, this process allows you to plan and, as a result, predict complicated situations and take action even before they happen. This way, the financial management of your business is always safe and healthy.
- Plan and manage inventory – Most of the time, your stock is a capital that does not earn interest or generates income, i.e. it is a fixed capital. However, money invested in it can prevent you from taking advantage of other, more lucrative opportunities for your business. Some questions, such as “what is the value of your inventory today?” And “what is the upper and lower limit of your inventory?” Help you understand the level of control you have over it and what decisions you can make not to have losses.
aThe well-controlled inventory shows how much and when to buy to supply your product quota. So by making this control, you know how to add investment and spending to your cash flow.
- Thinking both long-term & short-term – Through cash flow, it is possible to make an average projection for the whole year. With it, you can evaluate different scenarios and prepare for the most different adversities. Therefore, stipulate your expenses and earnings also in the monthly flow. So at the end of the month, compare what you planned with what was done. This way you can know what the unexpected expenses were and how to avoid them in the future.
- Evaluate your working capital – Have you ever stopped to check if you have earned the desired return by selling your products or services? It may be time to renegotiate contracts with your customers and charge a little more for what you offer or even focus your efforts on what will ensure the most financial return. This is why it is so important to track your cash flow and make periodic assessments to see if the business is actually going as planned.
- Determine credit standards for your clients – Before setting credit standards for your clients, you need to understand that there are two possible situations that need to be evaluated to know which path is most beneficial to your business:
One is when the requirements are low. This means that you have a lot of qualified consumers to buy and sales go up fast, but you have to have a high inventory of products to serve the public.
The other is when the demands are high. The number of people with qualified credit to buy your products decreases, and so do sales. Therefore, evaluate which of these two situations is most beneficial to your business, and then plan your actions carefully, leaving everything prepared for any situation that may arise.
- Count on the help of the financial management system – Although it is possible to do cash flow in a spreadsheet, it will never be the best option as it does not guarantee the same level of security and control as a specific automated system for this purpose. So having online management software is one way to make your work more practical, safe and accurate.
The online tools provide efficient and dynamic management of their cash flow facilitates and helps in analyzing the company’s situation and plan for the future. As you use the online tools, information is kept secure and, because it is online, can be accessed from anywhere. More than optimizing your day to day, management software helps you visualize financial movements and get away from loss.
Wrapping Up
Properly managing cash flows means increasing the chances of success for a small business. Do not forget to consider all expenses and income and analyze information. Elementary calculations will help improve the financial condition of the company without loans.