Cash Flow Management For Small Businesses

Delinquent cash flow management is one of the main reasons new businesses go up in smoke.

But it's boring, and nobody likes dealing with it.

So how do you, a small business owner, tackle this little problem that is powerful enough to kill you with boredom? And dangerous enough to destroy your entire business?

You implement some easy-to-use cash flow practices.

Old School vs. New Software

If you are a new business, it's a good idea for you to start your Cash flow management using an old-school method.

An old-school method will help you understand what happens with the cash in your business. It's a practice that you should try to make a habit from the very beginning of your new small business.

Then when you are ready to jump onto a new software like Quick-Books, The numbers thrown at you will make sense.

You will understand that at the end of the day, cash flow means,

cash in

minus cash out

Equals cash left

But more importantly, it will be easier to plan for your business, making it easier to make decisions.

So how do you get started?

Create a simple worksheet that's easy for you to use and update.

Understand that in your cash-in section, you will enter all the cash you receive. It doesn't matter if that cash was income, a liability, or an additional cash injection you made into your business.

In the cash-out section, you will enter all the cash your business paid out. This includes the expenses you paid, loans and interest payments, and any money you withdrew during the period.

This spreadsheet here is a free tool I'd like to share with you. It includes a listing of cash-in and out. It comes with simple formulas, so you only need to plug in the total numbers. Then it does all the cash-flow calculations for you.

Make a copy of it onto your drive and modify it to suit your business needs if it's challenging for you to make your own.

Plan How to Collect Income Quickly

You need to get paid for your products or services. Although this sounds simple, many entrepreneurs fall behind when sending invoices and receiving payment.

Avoid this by establishing guidelines to help your customers understand your payment policies. Share your policies with your customers upfront and stick to them.

Doing this will get your customers used to your policies. It will save you the time and energy that goes into trying to track down customers for payment.

It will also help establish set times your business will be receiving cash.

If you offer credit to customers, it's important to outline it here. Ensure that the credit time you are offering is not more than what is being provided to you by your suppliers.

For example: If you can purchase materials on credit for 30 days, you may want to give your customers 20 days of credit. Or you can also opt for a time a few days before your payments are due.

This will give you a much-needed buffer. It will ensure that you have the payment from customers before you must pay your suppliers.

Develop a Plan on How to Pay Expenses

Become familiar with due dates and average payouts that your business does every month.

You can group your expenses by their due dates. Designate a time to pay bills due between the 1st and 15th. Then select another time for those due between the 16th and 30th.

When you do this, you will reduce your admin time and help to meet all expenses promptly.

Defaulting on loans and credit purchases puts unnecessary stress on you. It also gives your business a bad reputation.

Paying expenses on time boosts your business reputation and increases the chances that others will want to work with you.

Pay Yourself

Make sure that you pay yourself.

Pay yourself every month to practice good financial habits and remind yourself that you are working for something more.

Even if it's just a small amount, pay yourself.

Try to avoid the bad habit of constantly withdrawing money from your business. These withdrawals make it hard to separate the business account from your account.

It's also more time-consuming for you to track. If you pay yourself, there is no need to track your expenses as meticulously as your business expenses.

Now do it

So now that you understand what you need to keep track of, schedule time to do it.

Make sure that you do it at least once per month. Try to keep this time consistent. If you have an accountant and delegate the accounting tasks, make time to go through it.

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If you are a very new business, try to do it weekly. Doing this weekly will help you be more aware of what is going on in your business. As your business grows, so will your knowledge and understanding of this process.

The Challenge

If you don't have a cash flow management process in place, download the worksheet this week and start using it.