Cash flow looks at the amount of money coming in and going out of your business in a set period of time. It’s a really useful indicator of your business’s health. Cash flow plans are ways of measuring and forecasting what’s coming up. This allows you to plan and prepare.
Given that a sizeable proportion of businesses fail because they don’t have money when they need it, it’s easy to see how important cash flow plans are. They are the business way of staying on top of your money.
Cash flow plans give you two-pronged insight. On one hand you can see when a bottleneck or a tricky spot is coming. Being forewarned is forearmed; you can do something about it. On the other when business is thriving, you can determine the best ways to invest in even more growth.
How to manage your cash flow
1. Stay on top of invoicing
In a small business invoicing is yet another admin task. But it needs to be done reliably and immediately.
2. Keep accurate records
Your books are your route to determining your cash flow, both at a set point in time, and for forecasting. Accurate records are far easier when you do them regularly with a consistent approach. This way you can always get an up-to-date picture.
Hint: Cloud-based software makes record keeping and invoicing incredibly easy for the small business owner.
3. This is business
Retain a professional and direct approach to business finances. Have a clear invoicing and payment policy and be consistent in using it. Be polite, be organised, and respect your business for the work it does.
4. Don’t complicate things
Many business owners start a cascade of panic because they assume that business finance and accounting equals complexities. In reality, the fundamentals of business accounting are simple.
Having said that, the accounts are one area that lends itself to delegation and this can bring untold peace of mind.
5. Be informed
Chances are your business endeavours aren’t actually accounting. No one expects you to be a specialist, but do educate yourself to a reasonable level so that nothing surprises you. This basic knowledge will help you determine when you’ve got enough working capital to take on a new member of staff, for example.
6. Keep reserves
You save up for a rainy day in your personal life; you need to do the same in business. There should be a reasonable cash reserve that’s there to act as a cushion when you need it. This allows you to navigate unexpected events and capitalise on opportunities when they present themselves.
Learning how to manage cash flow and create a cash flow plan is a core part of being a business owner. My business coaching can help you get a handle on cash flow.