How Small Business Cash Flows work

Running a small business can have great opportunities and potential. It also comes with numerous demands and challenges. Business owners require a specific skill set to run successful businesses. They also need to be able to manage funds effectively and efficiently.

Why cash management is important:
Managing the use of cash flow is important and enables the business to run more efficiently. Part of this is ensuring that there is a balance of debt and income. By managing cash efficiently while still a small business; it will make the transition to being a larger corporation simpler.

Cash Flow Basics:
“Poor cash management is causing more business failures today than ever before,” says Philip Campbell, a CPA and former chief financial officer in several companies and author of “Never Run Out of Cash.”

Cash flow is the movement of funds in and out of your business. This cash flow should be tracked weekly, monthly or quarterly.

Positive cash flow is achieved when accounts receivable amounts exceed accounts payable amounts.

Negative cash flow is when the outflow of cash is greater than your incoming cash.

Tips on improving cash flow:

  • Knowing whether you’ve made a profit or loss is not the same as knowing what happened to your cash. You must structure your business to have a positive cash flow if you want your business to grow and increase profits.
  • Plan for growth so that you can adjust cash flow accordingly.
  • Collect receivables when they are due and offer clients discounts if they pay quickly.
  • Extend credit to customers but ensure you do your research beforehand and make sure you lend to people who can afford to make payments.
  • Increase sales by trying to attract new customers.
  • Streamline ordering and purchasing systems so your customers pay in the shortest time possible.

 

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