5 Tips for Maintaining Adequate Cash Flow
New business owners often put too much emphasis on turning a profit, but they can fail to manage the money on which to operate correctly. A business usually does not earn much if any gain for the first few years. Profit is a long-term goal that can be planned for in the future. However, if the company is going to survive into the future to one day realize the purpose of making a profit, management should implement proper cash flow techniques from day one.
The ratio of money coming into a company as compared to the amount going out to pay it obligations will usually decide if the business will make it. One month or more of too much money going out without a reserve to fall back on can cause operations to halt and the company to close. Without money to pay bills, pay employees, buy supplies and keep the lights turned on, a business in this situation has effectively reached the end of its life. On the other hand, a positive cash flow even in the absence of profit can keep a business healthy for years while it builds its ability to make money. Putting these five tips into practice can help improve any business’ chances for survival.
- Develop a Backup Strategy
The ability to access reserves of cash can be critical when shortfalls inevitably occur. Establish lines of credit, pre-qualify for loans or put back salable assets before the need arises.
- Plan How Every Dollar Is Spent
Decide in advance how the money will be spent and resist the temptation to spend re-actively. Following a predetermined plan can help stretch available cash further.
- Implement an Efficient System of Billing
Getting bills sent out quickly tends to help customers pay promptly. The simple act of billing electronically can also help support positive cash flow in a business.
- Create Sound Collection Policies
Allowing customers too long of a billing cycle can cripple a business. Develop reasonable time frames necessary to maintain enough cash at all times for normal business operations to continue.
- Test and Adjust Systems Continually
Few financial procedures a business enacts work flawlessly from the outset. Adjustments should take place on a regular basis to verify that all systems are working to bring in necessary cash and keeping it for as long as possible.
Maintaining positive cash flow may feel a little bit like a balancing act at first. Balance is, in fact, what is needed as the amount coming in should match or exceed the amount going out for the business to continue.