When I talk to small business owners many of them talk about a problem with cash. They tell me that they need to earn more money, generate more leads and sell more products.
Often times, that’s not really the problem.
The real problem is their cash flow; the time difference between spending and receiving funds.
Managing cash flow is vital to the success of any business. The time delay between paying staff, overheads and suppliers to the point that clients are paying for products and services is often where the problem lies.
If cash flow isn’t managed properly it can create major, if not fatal, problems for a business. It can send your business in a downward spiral. Before you know it you can’t pay your staff or your suppliers because you haven’t received payment for services rendered.
As a business owner you must be on top of cash flow at all times.
Understanding the importance of cash flow is the first step. You can have great passion and purpose for your business, but if there is no cash, you can’t survive. It’s as simple as that!
Managing cash flow is something a business owner should never completely take their eye off, even if you have great staff.
Measure your cash flow
- Produce financial forecast reports for the upcoming quarter and then the year. These reports can give you a clear heads up if there is trouble on the horizon.
- Monitor the reports and compare regularly with how you are actually doing financially.
- Try to include as much factual detail in your reports as possible, particularly expenses. It’s interesting how often a big tax or other debt can send a company under. “I wasn’t expecting it!’
- Understand that sales will fluctuate, you will have a quiet time, prepare for it financially.
- Cash flow projections are not easy but they are vital. Along with a business plan it’s one of the core fundamentals to running a business.
There are many things you can do to stay on top of your cash flow and navigate the traps that we business owners can fall into. I know we have been caught out and learned a few lessons along the way. The biggest lesson I’ve learned is that forewarned is forearmed as far as cash is concerned. You can’t prepare for what you don’t know.