Manage your cash flow or else! I’m sure you’ve heard this saying before in podcasts or read it in business books, but what does it truly mean and what does it entail?
Let’s make it very easy and clear to incorporate cash flow management tricks in to your daily operations. There is lots to gain when you truly become the master of your cash flow. So, with these few steps and hacks you will start making financial decisions with ease in no time.
Review your cash flow statement regularly
I suggest performing a weekly cash flow analysis to start, but I know some businesses that are so active they need to look at it daily! Depending on your business model set aside time at a frequency that feels right. It may not be the sexiest part of being an entrepreneur, but it is one of the most important parts. Sit down with your latest cash flow statement and do a few things:
Look ahead. Will you be in a good situation one week, one month, and two months from now? Will you be able to cover your expenses and bills? Or do you see trouble on the horizon?
Look back. Are you owed outstanding payments? Did you have a slow month that will throw off your current month? What happened last week, last month, and two months ago that can impact how you manage your business today?
Consider growth potential. A cash flow statement allows a business to see inflows and outflows. While a cash flow statement alone will not paint the full picture surrounding your overall profitability or whether your company is making money, it does provide transparency around how you are growing your business. Many profitable (and growing) businesses go under because their outflows grow faster than they can collect from customers. Be careful and pay attention.
Make data-driven business decisions
Once you sit down with your cash flow statement and look at the key items listed above, then what? Let this knowledge guide your business decisions.
If you see trouble on the horizon, think about short-term decisions to right the ship. For example:
focus on driving sales that will secure upfront payment and quick turnaround;
assess how you can lower overhead through quieter periods; and
limit free work or slower paying projects.
If your cash flow is bountiful and steady–nice work! This is a good time to think about how you can innovate and invest to take your business to the next level. You can afford to take some new risks.
Implement cash flow hacks
Here are some quick and easy cash flow hacks that will help you overcome common cash flow headaches that all small business owners encounter.
Turn services into products. Productize your services and it will allow you to get paid upfront and structure your income in a more predictable way. Set up new business in a way that you see payment before you begin work.
Slow down accounts payable . Large companies do it all the time. They make small businesses wait 30 to 90 days to see payment (horrible, I know!). But there is something to be gleaned. If you need to delay payments to partners and contractors in order to keep cash in the bank and get through a tight cash flow period it’s okay to do it once in a while. Be sure to communicate the terms early and follow up with the payment on an agreed timeline.
Hold onto a backup credit card . It isn’t a bad idea to have a credit card that you don’t use very often and keep it handy to help you through tricky cash flow moments. Of course, interest sucks so try to pay it off as soon as you can.
Jeremy Black is the founder and CEO of Every, the essential business bank account for entrepreneurs. Jeremy spends most of his day helping entrepreneurs better understand their finances and growth. Copy this free cash flow template and review an example businesses cash flow statement on the 2nd tab of the Google Doc. Connect with @everyfinancial on Twitter.