5 Smart Ways To Manage Your Business Cash Flow
For any business large or small Cash is King. Learning how to obtain it, manage it and use it to grow your business is key to achieving success. I have met countless business owners who believes that knowing their bank balance is good enough. NOT! Knowing your bank balance does not reveal your profit margins, your business peaks or your expense lifestyle and much more. Read the list below to learn how to manage your cash flow successfully:
Always know your true cash balance. As stated above your bank balance does not reveal your true business numbers – the cash balance. The bank balance and the cash balance are two different forms of cash. Realize that the money in the bank is not accounting for any outstanding checks you have written and other key figures. Do not try to manage your business cash flow using the bank balance. It’s a prescription for failure.
Do Today’s Work Today. The key to keeping an accurate cash balance is to do today’s work today. When you do this, you will have the numbers you need – when you need them. Your cash balance will then represent the true flow your business.
Understand your Cash Flow Projections. Numerous small businesses fail because the owner did not discover the problem in time. To understand your cash flow projections always ask yourself the following questions:
What do I expect my cash balance to be six months from now?
How much cash do I need to have in order to exceed my total expenses?
What problems can I foresee and what can I do today to prevent or lessen the blow.
Create a business budget. Creating and maintaining a budget will help you keep your business goals in the forefront of your mind. It will reveal the relationship between the cash flow in and out of your business. As business change your budget will adjust. This will help you better understand your business and assist you with making wise business decisions.
Always have up to date and accurate books. If you are not using an accounting system start today! Maintaining a set of accounting records is not optional, it’s a law! The Internal Revenue Service (IRS) requires that businesses prepare and retain a set of records and documents that can be audited. This could be the difference in paying more taxes then you owe. Why? If the IRS examines your return and you’ve ignored the law, the IRS gets to do your accounting the way it wants.
A good accounting system helps management answer such questions as: What are my assets vs. liabilities ratio? What service and/or product sales the most and when? What is a profit last year compared to this year? What were cash inflows and outflows over a period of time? Is the current cash flow enough to pay back debt? Etc..
To successfully manage your business you must maintain a positive cash flow and have an accurate system in place no matter how time-consuming or expensive it is; besides the law requires it. If you do not know or have the time to implement an accounting system or maintain your cash flow hire someone.
Business success requires the ability to perform financial analysis, which is to accurately measure business growth, profitability, and cash flow, as well as to reasonably estimate your financial condition.