Are you struggling with your business’s cash flow?
Cash flow: It’s one of the standard elements of managing the financial health of your business, along with profits, revenue and that less fun component, expenses. But we’re not talking about big fat wads of greenbacks protruding from your pockets, or an old-school leather bag labeled with dollar signs and packed with gold coins – when you’re the one who holds the purse strings, they can be a little harder to visualize than the images of cash we may be used to.
What is Cash Flow?
Cash flow represents the amount of cash you have available in the bank at any time, that can be used for a variety of reasons: To pay your suppliers and employees; to buy equipment or maintain it; to purchase supplies and inventory; pay taxes, interest and related fees; and keep up with your office or store’s day-to-day overheads. Those payables that are flowing out of your accounts on a daily basis can only be replenished in one way – with your receivables. This will primarily be customer payments, whether for products purchased or services rendered, fees or dues owed, or for non-profit organizations, donations, and grants from your funders.
What makes it hard to manage cash flow in a small business?
Customers don’t always pay on time. Inventory may exceed demand. Overheads stay static, even when customers don’t. Let’s face it, even if your profit-and-loss statement is telling you that your business is in the black, there’s a difference between having the funds to manage day-to-day and knowing you’re breaking even for the year. That’s because timing is another important factor that affects how many pieces of gold (or greenbacks, if you prefer) are sitting with the goblins in your vault at Gringotts.
What can you do to manage it better?
If your customers don’t pay on time, or if you’ve had to pay a deposit on an order of supplies that’s yet to be shipped to the customer, the cash shortage is bound to hurt. Sadly, these aren’t always avoidable, except with careful planning and perhaps a crystal ball. What’s important, however, is to develop small management practices that could assist you in having the right cash, in the right place, at the right time.
4 Tips To Managing Cashflow:
1. Know your data.
The most important thing when managing your cash flow, and ensuring that the payables don’t outdo the receivables, is to know your money. Reading the data to know where your money is coming from and where it’s going is the first step to ensuring you can maintain a positive cash flow – meaning, the amount coming in is equivalent or more than the amount going out. The opposite? A negative cash flow, and not the way we want to do things!
Use a comprehensive system to track all your incoming and outgoing payments, so you know where your money is coming from – and where it’s going. Processing your payments online enables you to visibly track data of all your accounts, both paid and received, and to use that information to plan timing of payments and invoices.
2. Make it easier for customers to pay you.
Waiting for a large payment to arrive via a check in the mail isn’t going to help when there are salaries to be paid and equipment to be purchased. Make it easier for your customers to pay you by setting up your business to accept online consumer payments such as ACH direct transfer, or add a merchant credit card processing system to enable credit card payments to be paid directly into your account. For those who still prefer the paper check, use a system like E-Complish’s Direct Check, which enables checking account information to be gathered over the phone and a paper check printed in-house on a laser printer. No hassle, no waiting, no worries!
3. Ensure your outgoing payments are cashed directly.
Online payment services aren’t only a lifesaver when it comes to receiving your hard-earned customer cash. They’re also important to help you manage your cashflow by keeping cash in your account as long as possible by making direct transfers into accounts on the day payment is due. You can also use payment solutions online to avoid paying suppliers and service providers by check, leaving a time lag between receiving and cashing the check and messing up your perfect system of financial planning.
4. Choose your suppliers wisely – and your customers.
While it’s important to focus on selecting suppliers who can give you good prices and excellent service, it can also be helpful to choose suppliers based on favorable payment terms, giving you that all-important breathing space before the invoice is due. On the flipside, make sure to do your due diligence when selecting customers on a credit basis – do careful credit checks, and install a system such as E-Complish’s Check Verify to verify customer checks and avoid chasing bad ones.
Managing your business finances isn’t always easy – but it’s certainly rewarding when everything works out right. Implementing online systems may not be a cure all, but it’s with increasingly available tools like ACH transfer and direct deposit that cashflow can be managed well at every business level. Do the right research in choosing the ideal business payment solutions for your company, and it won’t be long before you’ll be on your way to a cash flow that is always positive.