All about cash flow management

Cash flow will be what keeps your business up and running, or brings about its demise. Studies show that most small businesses, fail due to the improper management, of their cash flow. If you do not manage your cash flow, then your business will face a constant struggle in paying its invoices, payroll and other needed expenses. The good news is that there are things that you can do, to proactively manage your business' cash flow. Here is what you need to know about cash flow management-

• Have cash reserves-In order to make sure that your business is viable, part of cash flow management, is building up cash reserves. Keep in mind that if you don't have cash flow reserves to fall back on, you will find it extremely difficult to fix equipment that breaks down, or take care of other unexpected expenses. You cannot always depend on debt financing, to fix your cash flow problems. Most importantly you will need to be able to show potential lenders, that your business is on stable financial footing, with sufficient cash reserves, on hand.
• Know what money is coming in-You need to be fully aware of what money is coming into the business. Once you know what money you will have in hand, you can better prepare to pay for payroll and other expenses within your business. There are often different methods that bring money into a business. These methods include but are not limited to:
  1. Payment on invoices from your customers, for the goods and services, they have purchased. (account receivables)
  2. Interest money that comes in from business savings and other investments.
  3. Shareholder investment costs, from investors in your company.
  Those business managers, who successfully manage their cash flow, are always keeping an eye on the incoming cash. This way if the cash inflow does decrease, immediate steps can be taken to bring it up again. Whether this involves marketing, a more concentrated sales effort or a combination of both, will then need to be determined.
• Know what money is going out-It is just as important to know how much money is going out of the company, as well as knowing what is coming in. If you are overspending (whether consciously or not), you will soon bring about serious financial problems, for your business. Studies have shown that there are certain areas that need to be monitored to insure that they stay within the cost controls that are appropriate, for the business. These areas include but are not limited to:
  1. Purchasing-This is including all materials and goods that are used within your business, on a day to day basis. This includes fixed assets as well as supplies.
  2. Payroll-You need to make sure that your payroll costs are in line with the production of the business. If you are paying to many employees or paying them too much, this can have a serious effect on your business.
  3. Rent/mortgages-This is usually one of the largest expenses that nay business has. You need to take a close look to determine that you are paying the right amount, for the right business space.
  4. Loan repayments/credit cards-Effective cash flow managers understand how much debt they have, and what it is costing them. If there is a chance for refinancing to a lower interest, this can have a positive effect on the business' cash flow.
  5. Income taxes-Taxes are most often not negotiable; however, a business should be fully aware of how much they are paying.

Finally, you should be fully aware of when all bills are due. Your business credit rating will depend heavily on making timely payments.