A company’s financial health is largely determined by its cash flow. If a business owner neglects to effectively manage the movement of money into and out of the business, there’s always the risk that the business will face insolvency. Any factor that affects the liquidity of a company should be carefully tracked and considered so that the business will not fold because of cash flow problems. Entrepreneurs who have been running their business for some time all have strategies to maintain and improve cash flow. For aspiring entrepreneurs and startups, there are lessons you can learn from trodding a well-worn path and here are some tips to help you pave the way for a more efficient cash flow management.
Tip #1: Always be aware of your cash flow balance.
There is never really a good excuse why you, the owner/CEO, shouldn’t know this. You might say you’re busy or that you’re doing ten thousand things all at once that you have your own assistant track it for you. The truth is, it’s not a viable reason for you not to know how your business is faring. If you are ill-informed of the finances of your business, how could you make any decision at all? You are the business owner so you need to take charge.
Tip #2: Be proactive, not reactive.
It is better to plan for any financial problems before it actually happens so that when it does (if it does), you would already have a plan of action in place. Consider stress testing your business’ financial health because the ideal situation is that you should be prepared and you won’t be shocked and shaken when you face financial woes because it will happen.
Tip #3: Never underestimate the importance of invoicing.
Keeping track of who you paid and who paid you for whatever amount is critical in balancing your financial statements. If there are disputes in payment, you would have evidence that would support your claim. If there are disputes in your invoices, make sure that it is thoroughly investigated and resolved at the soonest possible time.
Tip #4: Generate realistic cash flow projections.
You have to know what to expect from your business for at least the next 6 months but it has to be realistic and attainable. This will guide you on how you can manage your business so that you would be able to meet your financial goals which would lead you to make business decisions that would lead to its realization rather than its demise.
Tip #5: Study factors that may influence your cash flow.
These factors may range from changing interest rates, costs of labor and materials, exchange rates and the like.
Tip #6: Know your customers.
Customer trends are always shifting and it is important that you engage with and understand your customers so that you’ll understand what influences their buying decisions.