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For Entrepreneurs struggling to balance the books it would be wise to set regular forecasts, invoice quickly and make it easy to pay.

Cash flow is the most important thing to the financial health of any small business. Making sure you have the right amount of cash flow can make or break a business.

Every small business owner knows that cash is king, but how many see it as the real key to success? At a time when businesses are struggling to overcome obstacles to growth and unlock financial resources, the solution could simply lie in the way they manage their cash flow.

Sustaining a positive cash flow can be challenging for business owners, but it is essential. Not only does it strengthen an entrepreneur’s trading position and growth prospects, but it can also help to keep the company afloat when times are tough. While it’s true that poor profits can cause a business to close in the long term, the biggest threat to a company’s viability in the short term is failure to manage cash flow.

Getting Control of Your Cash Flow

Ask yourself the following two questions to get a sense about whether you have your business’ cash flow situation under control:

  1. What is my cash balance right now?
  2. What do I expect my cash balance to be six months from now?

If you can’t answer these two questions, then you don’t have your cash flow under control.

One way to keep that situation under control is by tracking your cash flow results every month to determine if your management is creating the type of cash flow your business needs. This also helps you get better and better at creating cash flow projections you can rely on as you make business decisions about expanding your business and taking care of your existing bills.

Managing cash flow with targets

One way of managing cash flow is by preparing and maintaining a cash flow forecast.

If you feel you were ill-prepared this year, the good news is that it not too late to do this, so with 2017 underway you have a plan you can review at least every six months within the business and sales funnel. Checking your business bank balance will tell you how much money you have today, but if you want to know how it will look in six or 12 months’ time, you need to write a forecast. This requires you to predict when money will move in and out of your bank account in the future, based on historical data and anticipated growth. Forecasts can highlight when adjustments need to be made. You may also be able to spot when there will be an excess to help you make informed decisions about core business issues such as capital expenditure, credit terms, supplier relations, and recruitment.

Toughen up on late payments

Prompt payment is one of the biggest challenges for SMEs; almost 50% are being paid late. Establishing clear payment terms from the outset is vital to business success when managing cash flow. This is particularly true in small growing businesses – as the old old saying goes, “cash is king”.

Chasing late payments is never an easy task, but keep it professional, rather than personal. Set up a separate accounts email address to send out reminders to put distance between you and the chasing process. If these fail to get any response, a phone call may do the trick. If not, there are firms that will chase late invoice payments on your behalf. As a last resort, SMEs can call on their legal rights to issue penalties or add interest to outstanding payments.

Save for a rainy day

Cash is the lifeblood of any business. Managed properly, it can provide access to the capital resources needed for investment in growth. But it can also offset the impact of unexpected business costs or a change in economic conditions. Business owners should always ensure they have enough cash reserves to act as a buffer. Having committed so much time, money and energy into starting and running your business, no business owner wants to let their cash flow stop them in their tracks.

 

 

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