Managing cash flow: Thinking beyond month to month
Cash flow refers to the amount of cash that comes in and out of your business during a certain period of time.
When you have more money coming into the business from sales, accounts receivable and other means than there is going out through accounts payable, monthly expenses, employee salaries etc. that is called positive cash flow, and negative cash flow is when you cannot afford to cover your business expenses because there is not enough cash coming in.
It goes without saying that in order for your business to continue to operate efficiently, you need to have a proper cash management strategy in place. Here are 5 tips to better manage your cash flow.
Monitor your cash flow regularly: there are various online accounting software products that simplify the process of reconciling your accounts, generating reports and more. Your information is secure in the cloud, and you can easily stay on top of your cash flow wherever you are.
Manage your invoices properly: try to get into the habit of sending invoices for payment as soon as possible, depending on the nature of your work, because the sooner you invoice your client, the sooner you'll receive payment.
Where possible, spread your payments: rather than paying all your bills at the same time, pay bills according to priority. For example, you can prioritise paying your rent and payroll first, or check whether you can receive discounts for paying any bills early and then prioritise the ones that qualify. Make sure that you stay on top of the payment dates so you do not end up paying late fees for any of your bills.
Maintain an open line of credit: a line of credit can help you and your business with paying for inventory, payroll and any other fixed or sudden expenses. There are various options on the market such as revolving loans, which are great for preventing a loss in profit during the slower seasons.
Re-evaluate your inventory: identifying items that aren’t selling well will help you manage your cash flow, and you can decide to sell those items for discounted prices and not buy additional stock after you deplete what you currently have. Similarly, you can always invest more into stocking items that do sell well.