Cash flow is an essential ingredient of your business! When you have a healthy cash-flow, you can pay all business debts in time, expand the business when necessary, and sustain operations. If there isn’t a proper cash flow, you will face financial ruin. Cash flow management comprises a set of practices that help you track, assess, and enhance your business finances. Cash flow management’s objective is to enable positive cash flow, where you have more money than going out.
In business, cash is the king! Managing your financials is essential if you want to keep your business afloat. However, it is also necessary if you’re going to expand and grow your brand. It will also help to plan and predict the cash surpluses and shortages.
Robert Trosten shares tips for cash flow management
There are two strategies for enhancing the cash flow: reducing the outgoing money and increasing the incoming cash. When business owners encounter financial issues, use a credit card, or open a line of credit. That is not a good idea. Robert Trosten shares some of the best guidelines for cash flow management.
- Know what you need to break even
Before you can work for a positive cash flow, you should know the amount you need to earn for breaking even. When you go beyond the break-even point, you are doing something correctly. And when you fall short of it, there must be an issue that you need to address and solve.
- Keep an emergency cash reserve
Every person should have an emergency fund. Similarly, businesses should keep an emergency cash reserve. It will enable you some security and flexibility when there are economic downswings. It is an excellent practice to have over six months of expenses.
- Create invoice terms and timelines
It is necessary to create clear payment terms before you start working with a new supplier or client. Ensure to lay out when the invoice payments get expected. It could be instantly after submitting the invoice or within a span of 15 or 60 days. If it’s a resource-heavy project, it is good to ask for an initial deposit that will help you cover the required costs. You can ask for the remaining payment on attaining specific deliverables and milestones.
- Encourage early and easy payments
An IOU (I Owe You) from the client is equivalent to not having money! You need to motivate your customers to pay you early, which will financially benefit you. You can provide small discounts and deals if they pay early.
- Give importance to cash flow than profit
Most people believe that the secret to business success is profit. The truth is, it’s all about the way you manage cash flow. You must check the earnings against the break-even point. If you are earning more cash than that and still the money feels tight, there are problems with accounts payable, receivable, or the shortfalls.
These are some of the crucial ways in which businesses can manage their cash flow cycle.