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Cash Flow is Critical!
Good cash management is extremely important in all businesses but especially crucial for small businesses. As a small business owner, your goal is to make sure more cash enters the business than goes out. Sounds simple but it’s not always easy.
The success of your business depends in large part on your ability to monitor cash flow and ensure there’s always enough cash on hand to meet the business’ obligations like payroll, rent, and other important expenses. Regularly assessing your cash flow and employing some useful strategies can help you make certain your business has a positive net cash position.
A business’ net cash position is determined by the following equation: cash inflow – cash outflow = net cash position. Essentially, the revenue coming into your business minus the business’ expenses equals the company’s cash flow. As the driver of your business, it is your responsibility to manage both sides of this equation.
How do you influence your business’ cash inflow or revenue?
One strategy is to decrease the average collection period of your receivables. Ask your customers for all or part of their payments upfront or give discounts to those customers that pay on time. Even with merchant fees, credit card sales are a great example of immediately bringing cash into the business.
Keep track of your business expenses
While watching your receivables can have a positive impact on your cash inflow or revenue, cash outflow corresponds directly to your company’s expenses. An operating budget is the ideal way to track expenses. You should scrutinize your spending and make sure you spend only on those things that have a positive impact on your business.
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Additional strategies
Other ideas that help keep cash in the business include maintaining low inventories and leasing equipment instead of buying outright. Most importantly, make sure you regularly evaluate your processes and tasks to ensure they are as efficient and cost-effective as possible. It could be as simple as making sure you turn off your lights, equipment, and computers when not in use.
Planning and awareness are critical to cash management. Regularly monitoring your business’ sources and uses of cash will allow you to notice opportunities to be leveraged and challenges to be avoided.
Mary Ellen Smyth is the Center Director of NYC Business Solutions, Staten Island. If you have a question or comment for Mary Ellen, drop her a note below. And, please share this blog entry with your colleagues on Facebook, Twitter, LinkedIn, e-mail, and your favorite social media sites.
