Your first priority as an entrepreneur is to efficiently manage cash flow. Unless your inflow matches or exceeds your outflow, your business is doomed to eventual disaster. It is imperative to take the time to calculate periodic cash flow projections with all of your revenue streams and expenses in mind. Here are some strategies to help you more effectively manage your company’s cash flow.
Draw Up a Budget
Based upon careful and accurate projections of income and expenses, create a budget that considers customer terms and discounts, sales cycles, and other factors. Expenses should include taxes, salaries, equipment, supplies, and other needs. Once you have drawn up the budget, monitor it carefully for shortfalls in income or unusually large expenses. After determining the reasons for the variances, make adjustments as necessary.
To facilitate inflow, as soon as you have delivered goods or rendered services, bill your clients. Emailing invoices ensures their quick arrival. If you extend credit to clients, remind them before payment is due. Offering discounts to customers who pay early is an efficient way to solicit prompt payments. For large orders, consider requesting down payments. Remember that making a big sale does not benefit cash flow until you have received payment for the goods or services.
Handle Payments Carefully
Although speedy collection of receivables helps your cash flow, early payment of bills does not. To enable your finances to work best for you, pay bills when they are due but not before. However, if you have the cash on hand to handle a large-ticket item, consider requesting a significant discount for prompt payment.
Be Ready for Emergencies
Despite your best efforts to efficiently manage your cash flow, shortfalls sometimes unexpectedly occur. That’s why you should have a contingent source of funding available for emergencies. This may include personal assets or loans from relatives and friends. It’s also a good idea to establish a line of credit with a financial institution during good times to draw on when you are in need.
For more advice on keeping business cash flow strong, contact Legacy Capital Lending.