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In simple words, cash flow means the net balance of money coming in and going out of your business at a specific point in time. It is crucial to maintain your cash flow as it significantly impacts the functioning and success of your business. If the cash flow is not managed properly, the business can face issues like the delayed purchase of inventory, delayed remuneration payment, etc.
Therefore, whether you are invested in your business full time or are managing it remotely, you must be able to manage your cash flow efficiently. Here are five cash flow management tips you must know.
Often entrepreneurs make the mistake of working out cash flow mentally without ensuring a concrete record of the cash. You could have no money even though you have made enough sales. Similarly, it's not necessary that you have already paid for something if you have made an expense. You must manage the actual expense, accrued expenses and sales separately to have clarity of your cash flow. Having precise figures will help you manage your cash flow in a better manner.
Making calculated plans for your business is always beneficial in the long run. For example, it would help if you do cash flow projections to know the monthly cash flow and outflows for the next year. You must also add the anticipated big-ticket purchases in them. Having cash flow projections will help you anticipate a slow period and be prepared for it.
Profits are not synonymous with cash, and it's imperative to remember this. Profits do not guarantee that you are managing your cash in the best manner. If you are having good profits and still feeling short on cash, probably, you are not managing your cash flow optimally. You might need to then make changes in the cash flow management of your business or check your working capital. If required, you might also need to apply for working capital loans to ensure that cash flow issues do not hinder your company’s operations.
There are a few ways through which you can speed up receivables and ensure that you have cash in your business. You can set invoice timelines and establish clear payment terms for the clients and suppliers. You can offer discounts for early payments or ask for deposits at the start of the projects to ensure that you have the cash to cover expenses. You can also facilitate customers to pay electronically and charge a fee for those who do not pay on time.
To avoid the issues faced by a cash crunch, you can have an emergency cash reserve. During economic downturns, the emergency fund will allow you flexibility and security.
You can use these tips to ensure that your business is not hampered by a slight shortage of cash. Whatever approach you adopt, ensure that your cash flow speeds up on time and your business thrives during financial instability.
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