Ask any long-time business owner for their single most important piece of advice on navigating the choppy waters of entrepreneurship, and you may likely hear these three words: cash flow management.
Cash flow is the fuel that drives your business. It can help get you from where you are now to where you want to go with your company. If your business runs out of money, then everything comes to a grinding halt: You can’t pay your bills, attend events, buy supplies or pay your workers. Having proper cash flow management in place may help you avoid having your business come to a standstill due to the unpredictable nature of accounts receivable. These three suggestions may help you improve your cash flow management, and keep your business moving forward.
Don’t Repeat History
If you have at least one year in business under your belt, you may want to take time to review your financials from the previous year. Were there any months when you had a cash flow emergency? Did it happen more than once? What were the reasons? How long did they last? How did you finally fix the situation? The answers to these questions may help you avoid making the same mistakes this year that you made last year.
Get Help With Your Cash Flow Management
Sometimes, as business owners, we miss details, we forget things and we often don’t see the big picture. When it comes to cash flow management, too many “stops and starts” can have a severely adverse impact on your company. You can lose customers, vendors and access to capital.
Before your business gets to this point, consider making arrangements to have other people review your cash flow situation. It may be helpful to set up regular meetings with your accountant, bookkeeper, sales manager or business partner to review your cash flow position for the next 90 days. Invariably, there will be a “big check” scheduled for payment that gets pushed back by the customer. If you prepare for these types of situations, you may be able to negotiate with vendors on checks that need to go out that month. The key to success is having an open line of communication on receivables and payables. Don’t get caught writing checks that your bank account cannot cover.
Look Into Your Crystal Ball
What does the future hold for your business and the marketplace? How will the country’s uncertain economic outlook impact your future sales and vendor relationships? Being able to visualize the next 12 months, may make you better prepared for changes to your cash flow position. Additionally, you may want to think about possible natural disasters that could hit either your business or your customers. If your area is prone to seasonal hurricanes, tornadoes, fires or some other disaster, it may be beneficial to have your receivables in order before disaster season starts. If your customers are dealing with the aftermath of a natural disaster, your invoices may move to the bottom of their priority lists.
Running a business in 2016 is not easy. However, by staying on top of your receivables, maintaining a strong cash flow position and practicing cash flow management, you may have more time to focus on navigating the choppy waters ahead.
Read more articles about managing money.
Photo: iStock
