Manage Your Cash Flow By Managing Your Financials

Author: Fundbox Team | September 12, 2013

The adage “Cash is King” never fails to get on our nerves, yet it has never been truer than when it comes to managing the financials of a growing company. Having a clear cash flow can make or break a business, and it’s important to manage your cash flow wisely.

Cash flow management often means delaying expenditures as long as possible while encouraging anyone who owes money to pay as quickly as possible. Business, however, is not so black and white. It’s because of this grey area that we’ve decided to outline four steps that can help you to keep track of the money coming in and out of your company.

Measure Your Cash Flow
First, prepare your cash flow projections. This isn’t a glimpse into the future – just an educated guess based on your financial history. Add the cash you have on hand at the beginning of a period with cash that you will receive during that period. During this process, gather projected information from salespeople, service reps, collections, etc. Along every avenue, ask the same question:

“How much cash is coming in?”

This question reflects customer payments, interest rates, service fees and whatever other sources affect your income.

Second, you will need a detailed listing of the money that you will need to pay out in expenses. How much do we pay in rent? Office supplies? Employee salaries? Taxes? Your end estimate should be based on:

Cash on hand + Expected Income – Expenses = Cash Flow Projection

Pretty easy, right?

Improve Receivables
In a perfect world, we would get paid the minute a sale was made. Unfortunately, many businesses don’t work this way; often it can take up to 90 days to get payment for a service. Fortunately there are things you can do to incentivize customers to pay on time (or early) and improve incoming cash flow. Popular techniques include:

  • Offer discounts to customers who pay quickly
  • Ask for payment up front
  • Issue invoices promptly and follow up on past-due accounts
  • Track accounts receivable to identify and avoid slow-paying customers

Additionally, there are many online solutions to help you manage invoices and accounting, getting rid of the headache of billing. Two services we recommend are FreshBooks for cloud accounting and VeriFone Payment System Management.

Monitor Expenses
Any time you see overhead expenses growing faster than sales, it’s time to re-assess your budget. Look at your costs to find places to cut expenses or control outgoing cash. For example:

  • If creditor’s payment period is 30 days, don’t pay out early
  • Transfer funds electronically as late as possible
  • Don’t always opt for the cheapest supplier – flexibility is always better

It’s important to stay on good terms with your suppliers in order to continue providing the best service to your customers. However, paying at the last possible moment also ensures you have the funds to do business until your customers pay you.

Manage Shortfalls
As a small business owner, there will come a time when you won’t be able to pay your bills on time. This doesn’t mean you’re a failure, just that your predictions were off. Most important in these circumstances is to detect the problem as early as possible. Bankers are reluctant to lend money to business’ that need cash today. The earlier you detect the problem, the more likely you’ll find an effective solution.

If you do discover you’re short on cash, there are steps you can take to avoid disaster. Many organizations offer short-term loans for short-term cash flow gaps.  This can help you survive the awkward period between customer payments, and will help ensure that your business is around to provide services for the next month and beyond.

So let’s recap –

  1. Measure your cash flow
  2. Improve receivables
  3. Monitor expenses
  4. Manage Shortfalls

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