Don’t Let Your Cash Flow Spook You Later This Year

Cash Flow

It’s certainly not uncommon to get startled this time of year.

You might turn around a corner and see a pack of vampires looking for their next meal. Or maybe that ghost you swear has been haunting your colder-than-imaginable office all summer will finally decide to reveal itself to you. Then there are zombies, so many zombies.

During the Halloween season, there’s no shortage of monsters, goblins and other ghouls trying their best to catch you off guard and spook you—‘tis the season, after all.

As a small business owner, however, you pride yourself on remaining calm, cool and collected in all situations. So when your staff transforms the office into a Haunted House to celebrate the Halloween holiday, you try your best to act nonchalantly when you run into the severed spines, brains coming out of skulls and mummies that your employees have so masterfully hidden around the office.

But perhaps the scariest thing you may encounter at the office during the Halloween season isn’t a crazy scarecrow, demonic jack-o’-lantern or even anything of the like. Quite simply, if you’re not paying attention to your company’s cash flow, you may let out an earth-rattling shriek when you’re presented with a new opportunity and take a peek at your finances to see if you’re able to pursue it.

In order to eliminate the possibility your cash flow will come back to haunt you later on, there’s no better time than the present to assess your cash flow situation and see where your small business stands now, as well as where it might stand six months from now. That way, if it appears your cash flow is dying, you can take steps right away to nurse it back to life before it’s too late.

One of the easiest ways to assess your company’s finances is to prepare a statement of cash flows (if you haven’t already). Once you’ve put that together, you’re able to quickly gauge how much cash your business is bringing in and how much it’s paying out. You can then begin drilling deep into the numbers to see exactly what’s what.

For example, once you’ve determined your business’ operating cash flow (i.e., the cash you generate from your day-to-day operations) you can then divide that number by your company’s revenue to determine exactly how much you’re profiting on sales. If that fraction is lower than you’d like it to be and your company’s cash flow is drying up, it might be time to raise prices, incentivize your customers to pay their bills earlier or use a service like Fundbox so you can access the money you need to pursue new opportunities (e.g., releasing new products or launching new marketing blitzes).

Your cash flow statement also helps determine your business’ free cash flow, or the difference between your company’s operating cash flow and the money it spends on capital expenditures. The higher this number is the better. So if your free cash flow is scary low, it’s probably time to go back to the drawing board to see how you’re able to inflate it—which isn’t as hard as it sounds. For example, do you know if you’re getting the best deal on electricity? If you live in a state where energy’s been deregulated (here’s a list), you’ll probably be able to save money on generation costs by switching providers.

October can be a hectic month because you never know when Frankenstein might jump out at you. But by being proactive with your cash flow management, you’re able to keep the things that might scare you around the office to a minimum.

Happy Halloween!

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Tags: FinancingRunning a Business