Managing Cash Flow is Critical for Growing a Business
Monday, April 16, 2018
For small business owners and entrepreneurs looking to launch a business, managing cash flow is critical to success. Learning how to manage a business’s finances is not as easy as it sounds. There are many factors, internal and external, that can influence business profitability and even whether a business has cash on had to pay suppliers and employees. Here are some cash flow basics that every business should know.
Cash flow must be actively managed
Many small business owners look at sales revenue as being the only thing that matters. They assume that if the sales numbers are good, there will be enough money in the bank to pay invoices, make payroll, buy materials, and grow. This is not necessarily the case. To make these payments, a business must have positive cash flow.
On the income side of the equation, managing cash flow involves taking proactive steps to ensure that customers pay their invoices as quickly as possible. Some tips for doing so include:
- Offering a discount for early payments
- Setting customers up on autopayments
- Having a set process for sending invoices and invoice reminders
When it comes to expenses, business owners need to be aware of what invoices need to be paid and when. Things like payroll and a building lease may be consistent month to month, but other expenses may only come up once a year. Managing cash flow is necessary for ensuring that money is set aside to make those payments. Otherwise, a business could get into a cash flow crunch that hampers daily operations or business growth.
Work with an SBDC Advisor
EDASC’s resident SBDC certified advisor can help business owners create cash flow projections and identify when there could be shortfalls. This is beneficial at any stage but especially prior to launching a new product line, sales campaign, or hiring new employees.
Prepare for the future
By understanding the dynamics of cash flow, business owners can take steps to mitigate any potential problems. This could include applying for a business line of credit to use at certain times throughout the year. Many of EDASC’s banking partners offer these solutions.
Help when you need it
For help creating cash flow projections or for additional financial literacy tips, EDASC has a resident SBDC certified advisor. You can contact Cindy Brooks at firstname.lastname@example.org.