Whether you’re a budding start-up or an established SME, facing cash flow challenges is inevitable. Late payments from customers to low profits can cause cash flow problems, especially if you’re just starting out or even expanding fast. However, it is important to note that maintaining a healthy cash flow is just as important as managing your expense budget and debt.
Here are 3 cash flow management tips to help keep your business healthy.
Build an emergency fund for your business
Having little to no cash reserves is a problem that many small businesses face. Without this extra cash, your business might be unprepared to handle unexpected bumps like a shipping mishap or missed invoice.
Minimise this risk by building an emergency fund early on. Much like a personal emergency fund, you can separate a small portion of your revenue to a separate savings or fixed deposit account. Just how much do you need? It all depends on you, but a good rule of thumb is that it should cover at least six months of business expenses.
Manage your operation costs
The old business adage is that you have to spend money to make money, but when your cash is tied up in paying your suppliers, and payment from your customers is not due any time soon, there’ll be very little cash left for daily operations. The idea is to be careful not to overspend when you’re expanding and financing your purchases.
Track your day-to-day cash flow
Cash flow forecasting helps anticipate when you’ll face cash flow deficits and surpluses in the future. This gives you the opportunity to prepare for unforeseen circumstances and make the necessary cost adjustments.
Just be careful not to overestimate future sales, and make sure you take into account the due dates of payments your business has to make. Once you have a cash flow forecast, you can compare it to your actual figures to see how accurate it is, and use your findings to make adjustments to your next forecast.
Cash flow challenges can be difficult for your business, but you can get through them with careful monitoring and management.