Managing cash flow is vital to keeping your business running, but for businesses looking to grow, cash flow is an absolute necessity. For many business owners, managing cash flow can feel like treading water in the ocean with crashing waves and undercurrents trying to pull your down. Even if you stay afloat (and statistically many companies don’t) it can be a tiring process that requires constant work and concentration.
For start-ups, SMEs and growing businesses the battle is even tougher. Failing to get a handle on your cash flow is a sure-fire way to seeing your business go under.
There are two crucial elements to cash flow:
1) Accounts receivable (i.e. the money that is owed to you)
2) Accounts payable (i.e. the money that you owe)
It is entirely possible to run a brilliant, profitable company with a negative cash flow. A big sale might be a profit on paper, but until you actually get paid that sale isn’t worth the paper it is written on.
There have been many brilliant people with fantastic products or services that have gone under simply because of poor cash flow management. Want to ensure that your business doesn’t fall victim to cash flow problems? Here’s how:
1. Track your cash flow
Ensure that your company is tracking weekly cash flows closely, know how much cash you have on hand, your break-even point, and create cash flow projections.
These projections should help you identify and counteract rough patches ahead. Pay equal attention to both projected expenses (everything from salaries and inventory to the gas bill) and sources of revenue (including sales, interest earnings, fees, collections, and incoming loans or investments).
Build projections for next month, next quarter, and next year, but remember projections are just projections - keep an eye on the balance sheet at all times.
These projections should help you identify and counteract rough patches ahead. Pay equal attention to both projected expenses (everything from salaries and inventory to the gas bill) and sources of revenue (including sales, interest earnings, fees, collections, and incoming loans or investments).
Build projections for next month, next quarter, and next year, but remember projections are just projections - keep an eye on the balance sheet at all times.
2. Keep some cash reserves
Even the best run business will run into cash shortfalls here and there. Be prepared. Don’t let a lack of liquidity prevent your business from doing what it does best. Keep some cash reserves aside to help your business run smoothly during dry patches.
3. Prepare for shortfalls
Even businesses with extra cash on hand are bound to run into shortfalls. Sometimes shortfalls are unavoidable, even with stellar cash flow projections and a healthy cash reserve. When this happens you don’t necessarily need to go into debt. In fact, may banks won’t fund small businesses with cash flow problems. Instead, call J D Factors. We help businesses with:
• Factoring (sales of accounts receivable)
• Debt recovery
• Invoice discounting
• Non revenue – assumes risk of receivables
As cash flow management specialists, J D Factors can help you recover during periods of cash flow crisis without having to take on debt or negotiate with suppliers, customers or employees. With our help none of the people you do business with needs to know you’re having cash flow problems. Call us today to learn more about how we can help you better manage your cash flow.
