Money Matters: How Small Businesspersons Should Manage Cash Flow

managing cash flowCash is the fuel that keeps the business running. With its extreme significance, it’s just important that a small businessperson develop a management style that will ensure its flow within the organisation. In the simplest sense, cash flow management means preventing debts and other liabilities from increasing. It’s about streamlining your accounting system and making it more effective. To some, part of management is knowing the trends in finance, which is why many undergo training to learn more about aspects like VAT and the regional economy.

We’ve outlined some tips below to help manage your enterprise’s cash flow. You can start integrating your personal strategies from here.

Cash is Measureable: Measure It

The first step is understanding that cash can run out. The proposition may sound negative, but the good news is it can never run out so long as you know how to manage it. Cash management starts with measuring it. And measuring what you have in your hands in a certain period will help you come with educated and accurate guesses.

Calculate how much you will have to spend for the next quarter and foresee the different forms of expenses you will likely make. Don’t assume that sales will increase in the next quarter. Projection may be hard work, but it will help you make sound decisions when faced with a crucial and difficult financial issue.

Receiving is Better than Giving: Focus on Receivables

Sales are an indicator whether you will have a cash flow problem or not. But sales don’t always come swiftly as you will expect. The sales pace depends on the type of business. Regardless of the type of business, what will normally work when it comes to improving receivables are offering discounts so customers will pay immediately and asking for a deposit when taking orders. Keeping a record of customers who pay and don’t pay on time also works.

Don’t Forget About the Payables

Sometimes, expenses increase faster than sales. When this happens, it spells trouble. The golden rule here is not to delay payments. Take advantage of your creditor’s or supplier’s payment terms. Constantly talk to them so they will have an idea of your financial condition. Don’t ignore discounts and flexible payment terms to at least do away with some problems regarding payables.

Business is about money, and you have to ensure that it flows in and out smoothly. Do whatever it takes to perfect your cash flow. If what it takes is to revamp your accounting system or take a rigorous course about bookkeeping and VAT, do so.

About the Author

James Maxwell, a Media Buyer at a media buying agency in New York. He was a former media ethics professor at a university in Los Angeles.