Cash flow should always be on your mind but it seems it’s never so much of an issue than when you are closing your books and going into a new year. At least your awareness of cash flow is peaked during these times because you are somewhat forced to look over your business finances.
But it should be on your mind all year long because we know you have your own obligations to meet such as payroll, rent, and a whole host of other expenses. In short, paying attention to your business cash flow should be a year-round habit. While we know there are going to be times when you’ll need to turn over certain invoices to a collection agency, the sign of a healthy business lies in cash flow and the proper management of that cash.
Here are a few tips our team at American Profit Recovery has come up with to help you stay on top of your cash flow.
Manage your receivables-One of the quickest ways to see your cash flow disappear is to let those late and non-paying customers go too long. While it does not pay to be disrespectful about not getting paid, many in business wait far too long to get more assertive when it comes to collecting on those unpaid invoices. Make sure you keep on top of those that do not pay you but do it in a kind way. Know the difference between assertive and aggressive when it comes to debt collections.
Manage what goes out the door- By the same token, make sure you keep a close eye on what cash is going out on expenses. Monitor those expenditures every month and cut anything that doesn’t make sense in your business. We also recommend you have your team do the same. Give them a little responsibility to make sure they are keeping an eye on everything they might spend. You’ll also want to ride the ups and downs of your business such as seasonal activity and adjust expenses such as inventory accordingly.
Cash in the bank- If you are down to your last dollar, there’s not much that can bring you back from that. Make sure you have enough cash in the bank to keep your business afloat for up to six months. When you have negative cash flow, you are restricted on so many levels including growth, paying your bills on time as well as the ability to borrow more cash.
Get help- You don’t have to do it alone when it comes to keeping cash flow in the positive. If you are having trouble getting your clients to pay, consider hiring a reputable collection agency to help your business. If you need help keeping your books up to date, hire a bookkeeper. And if you need funds to help grow your business, go talk with your local banker and explore your options.
While we could argue what the true backbone of a business is, our belief is it’s in the cash flow. Without proper cash flow, you don’t have a business. Pay attention to it, treat it like the air you breathe and don’t let it get away from you.