In a business, cash flow is a very important and crucial thing to pay attention to. This cash flow is a financial record of incoming and outgoing that occurs in a company. In it, you must record all the company’s cash expenditures and income, both for the short term and for the long term.
As a business owner, knowing cash management is something that must be mastered. Especially when you are just building a business, all financial records must be transparent and written in detail. This cash flow will determine whether your company is profitable or not.
Why? Because all matters related to your business finances must be in this cash flow. Both incoming and outgoing money will determine the profit you get.
If in a small business, you don’t have a clear cash flow, then you will find it difficult to manage your finances and business. Even though your business is still running and making a profit, there is no clarity about the real value of this profit.
Simple Tips for Managing Cash Flow in a Small Business
One of the causes of small business failure is poor cash flow. This poor cash flow means that there is no good financial record in your business and this affects the development of your small business.
Then what are the tips for managing cash flow for a small business? Here’s what to watch out for:
- Create a Simple Cash Flow Projection
The real cash flow management required by business owners is simple cash flow. The purpose of simplicity is the existence of clear and transparent financial records, both for incoming and outgoing money.
Cash flow projections are needed because this is an early warning system about your company’s cash flow. To start recording finances, you can use accounting software or something simpler with an Excel spreadsheet.
You can check your cash position regularly every day, week, or even monthly. From this cash flow projection, you can take precautions if there are things that must be handled immediately, especially unexpected expenses.
The cash flow in your financial statements must be under control and must be updated regularly. For example, there is money coming in and money going out every day, so you must immediately record it in the cash flow.
With periodic financial records, you can see how the financial condition of your small business. This is what makes cash flow quite influential on the development of small businesses because it determines whether your business is profitable or not.
The accounting system used in recording this cash flow will help you track finances and report business metrics. Here you can see the operating margin, cash flow, and accounts receivable in your small business.
A simple accounting system will help business owners to manage money professionally and see new opportunities.
- Separate Business and Personal Financial Records
Many small business owners have lost money because of this simple mistake. Because there are still many who combine personal financial records with small business records.
This makes recording the company’s cash flow messy and you will have difficulty distinguishing company expenses. Mixing business and personal financial records can make your business lose money, even this will be difficult to realize because you don’t understand how business cash flows.
Therefore, separate personal financial records from the business so you know how much money is coming in and going out of your business. Even if your small business is high-income, you also have to record cash outflows to know your business’s net income.
- Create Cash Reserves
Even though your business records a sizable financial inflow, you still have to make cash reserves. Why should this be done? Because there are things that might happen beyond your predictions, especially when you are short on cash.
Or other conditions when there are clients who are late paying bills, then you need to reserve money to cover this. Cash reserves make your business wiser because there are many unexpected expenses.
To create cash reserves, you can use cash at the bank. You can make this cash reserve at the beginning of the month and don’t use cash reserves if there are no urgent conditions.
Cash reserves will help you get cash faster in an emergency. You can call it a company reserve saving that can be used in a critical situation.
- Credit Line Becomes Alternative Choice
One way to keep cash flow optimal for a small business is to use a line of credit. In a small business, maybe you can’t make big profits yet, but you have to do a lot of business expenses.
This often makes it difficult for small businesses to develop because the company has a lot of expenses compared to income. With a line of credit, you can get a business loan and help you manage your company’s finances better.
Even though you have to add accounts receivable, this line of credit is powerful enough to keep the company’s cash flow stable.
- Accelerate Cash Inflow
To manage the company’s cash flow, you can accelerate cash inflows. Getting money for your business faster will help you settle bills earlier and save more on lines of credit.
You can send invoices faster, charge interest if the client is late and ask customers for electronic proof of payment. This method will make your business get cash inflows faster.
Don’t be soft on customers who are late paying, you can even act firmly on these customers. The slower the money comes in, the slower your bill payments will be.
Meanwhile, you must maintain the credibility of your receivables as a business owner so that the company’s finances continue to run well. You also keep track of payments made by your clients or customers.
Those are some tips you can do to manage cash flow in your small business. By controlling cash flow, you can prepare and plan to finance your small business. This will also affect your peace of mind as a small business owner.