Posted by NBDC Communications on Oct 08, 2021 07:35:17 AM
Do you know how much cash your business has available right now? Do you know what bills are due this week and which later in the month? Many business owners know what is in their operating bank account, but don’t have a clear picture of what expenses will be due and how much cash they really need to get through the month and (hopefully) net a profit. Cash flow management solves this problem.
Cash flow management is essentially the tracking and analyzing of how money flows in and out of your business, and then forecasting when new cash will be coming in and how/when you will use that cash. Cash flow management is particularly critical for small and mid-size businesses, as they often have less free capital available to help them cover unexpected costs, delays, work shortages, or their own growth.
Managing your cash flow sources and the consequent uses of that cash can literally make or break your business. A U.S. Bank study showed that 82 percent of small businesses fail because of poor cash flow management.
The good news is — good cash flow management isn’t beyond your reach, even if you are just starting your business.
Start Tracking Your Cash Flow Now
If you think your business is too small to need cash flow management, think again. Proper cash flow management can help your company achieve profitability more quickly and prevent the kind of financial hardships that shut so many new businesses down. If you are a solo entrepreneur or your business is very new, you can download a free cash flow tracker template to get started. If your business is a little more sophisticated and using accounting software like QuickBooks, you likely already have a cash flow statement option available.
Remember, you can’t improve what you don’t measure. Start recording expenses and revenue on a weekly basis and see what trends start to emerge.
Hire a Certified Public Accountant
A lot of business owners start out managing their own books, only to discover too late that business financial management is far more complex than balancing your household checkbook.
Worried about the expense? Consider this: How much would you pay for the following benefits to your business:
Hiring a CPA doesn’t mean you can ignore your company’s financials entirely. You should plan to sit down with your accountant on a regular basis and be ready with questions. Even if a CPA is pulling these numbers for you, it’s important for you to understand them so you know what actions you need to take to keep your business profitable and growing.
Understand Your Financial Options
Some business owners are so proud that they can pay all their bills in cash that they forget the importance of having free cash (and solid credit history) available in case of an emergency. That moment — when money is tight and the need is urgent — is not the ideal time to go searching for funding.
Talk to your local community bank or credit union. Ask other business owners about their experiences and what has, and has not, worked for them in the past. You can even get pre-qualified with certain lenders just in case you end up needing funds for a big project or an expansion of your business.
Knowing your financial options doesn’t mean you have to take out a loan or a line of credit. It doesn’t mean your business is in trouble. It means you are doing the smart thing in advance — planning for a rainy day or the next great opportunity for growth.
With simple cash flow management practices like these you can take control of your company’s present success and future growth.
Printed with permission from ASBDC. For the original article, click here.