Businesses are confronted with a range of challenges when getting started. While it’s common for owners & entrepreneurs to think that becoming profitable is the most urgent task, managing cash flow, especially in the start-up phase, is far more critical to a company’s survival.

If you think about all the resources in your business, one of the most valuable resources of all is the cash you have available. Cash is the lifeblood of your business, the fuel that keeps your company running. Without it, there is no way to pay liabilities, expenses, or invest in new products. The reality is that your business can survive for some time without making any profits, but it won’t last long without any cash.

If you’re having trouble managing your business’s cash flow, don’t get too frustrated. Cash flow problems, caused by a variety of things like late customer payments or unexpected bills are very common. The good news is that with the right processes and systems in place, along with a bit of planning, dedication, and attention to detail, it’s possible to decrease cash flow problems and safeguard your business. Here are five easy tips to manage your cash flow.

Measure Your Cash Flow Regularly

With limited amounts of cash, small businesses are inherently fragile, unstable, and very vulnerable to cash flow problems. It’s important for new businesses to keep a close eye on cash levels by measuring cash flow weekly or even daily. As an owner, you should have a thorough understanding of what your business is owed, who your company owes money to, and what the payment terms are. Set aside some time every day or at least every week to assess your cash flow position, forecast, and plan ahead. Keeping a close eye on your cash flow means you’re less likely to encounter any huge surprises and will have more time to deal with issues that arise.

Ensure Accuracy & Timely Delivery

It simply isn’t good enough to just measure your cash flow regularly. You need to ensure that the financial information you are using is accurate and delivered to the right people at the right time. Your employees must make business decisions based on sound information, or bigger problems will eventually surface in the future. To ensure accuracy, partner with an accountant (internal or external) that has a strong understanding of cash flow and how it affects your business. Try to avoid someone just “keeping the books” and keep your accounting information up to date so you can always have quick access to your business’s cash position at any time.

Keep Your Accounting Simple

Just because you hired a great accountant doesn’t mean you can forget about managing your cash flow. You must understand your business’s cash flows whether you have an accountant or not! If you’re not confident with numbers or cash flow statements, educate yourself and get on top of your fears. To make things easier, faster, and less daunting, use quality accounting software that can help you easily measure and forecast your cash flow. A reliable and straightforward accounting system will help you stay organized and boost your confidence. Complicated accounting processes and systems will lead to confusion, mistakes, and ultimately, the mismanagement of your cash flow.

Bill Clients Immediately

To ensure the rapid flow of funds back into your business you need to be crystal clear with all your clients about payment expectations before you begin work. You have only one chance to train a customer how you expect to get paid. Set up reasonable payment terms that work for you and don’t offer extended payment options that put a strain on your business. It’s also essential that you don’t sit around and wait to send out invoices once you have completed work. Bill your clients immediately upon completion! Invoices should be straightforward and easy to read, with vital information like due date, amount due, and accepted payment methods highlighted so there is no confusion. To speed up payments, offer your clients incentives for early payment such as a small percentage of the total bill.

Maintain Cash Reserves

Regardless of how much planning your business does to safeguard its finances, it will at some point encounter cash flow challenges. This may come in the form of an unforeseen expense or from a seasonal dip in business. Whatever the cause, your business needs reserves to help get through cash shortfalls. As a business owner, this starts by understanding your business cycles and planning ahead. Be aware of cash flow dips if your industry is susceptible to seasonalities and prepare for those low points with cash reserves. Having reserves on standby will give you the confidence and finances to get through cash flow dips, grow your business, and enable you to act on opportunities that come your way immediately.

Contributed by:
Nan Jiang
Financial Analyst