The Business Edge Blog

December 18, 2012

Cash Flow Essentials for 2013

Wad of cash

I’ve talked about it before, but I think it’s worth talking about again as we head into a new year…….Cash is the lifeblood of every business.  Cash Flow is the movement of money into and out of your business.  It’s the cycle of revenue and expenses that make your business a “going concern” or not.

Cash Flow Management is the process of monitoring, analyzing and adjusting your income and expenses to maintain solvency.  I have seen highly profitable businesses go bankrupt because of poor cash flow management.

In good times and in bad there are two strategies of Cash Flow Management that small businesses need to implement to head off cash flow problems:

1)      Project cash flow for the coming months.  If you haven’t invested in an accounting package yet, do so now so that you use it throughout 2013.  The most common programs have built-in reporting features that make projections easy.

2)      Develop and implement strategies to maintain an adequate cash flow.  Push to collect accounts receivables faster – consider Due on Receipt terms – or invoice more frequently if you only invoice monthly now.  Pay your accounts payable on their due date, not before and not after – both cost you more money.

Before working with me, some of my business coaching clients have made the following mistakes that I want to be sure you avoid:

  • Not creating projections at all.  They try to manage cash flow by their bank balance.  I have seen business owners go without paying themselves because cash was short and they had to make payroll for everyone else.
  • Not sending invoices promptly.  People are much quicker to respond to invoices when they have just received the benefit of your services.  This is an easy task to outsource to a Virtual Assistant if this type of paperwork bogs you down.
  • Finding ways to shorten the cash flow cycle.  This includes keeping a sharp eye on inventory levels and not overbuying because it looks like you can save a few cents by buying a larger quantity – tying up more cash for a longer period of time.
  • Leaving the planning to the accountants.  Particularly in times of tight credit, lenders will be more willing to work with small business owners who are savvy when it comes to their business finances.  Lenders know that business owners who have implemented good cash flow management, more than any security interest or other protective measure, have the best ingredient for a successful lending relationship that minimizes their risk.

I wish you all the very best in 2013!  Let me know how I can help you make this year your very best year yet in the comment section below.

Until next time, remember – Mind Your Business!

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