Cash flow is the life blood of any business but it is more critical for businesses wanting to grow. While there has been a little loosening of credit, bank loans can still be pretty hard to get. While your company may be profitable, without proper cash flow planning your company can be pushed to the brink.
The following tips can ensure your cash flow is managed well and put your company in the best position to succeed.
- CREATE A BUDGET
Business owners should sit down to thoughtfully estimate expected cash inflows and outflows. Factors to consider include the sales cycle, terms and discounts provided customers, industry delinquency rates and other factors that may affect the timing of incoming cash.
- MONITOR THE RESULTS
Examining the budget should not be an infrequent activity. On at least a monthly basis (but more frequently if warranted), the actual cash flow should be compared with the budget to work out the kinks in the system. If cash inflows are less than anticipated, figure out the reason for the shortfall. If cash outflows end up being greater than expected, understanding the cause is also important.
- DEVELOP A DISASTER PLAN
Regardless of the amount of time and energy a business owner devotes to creating a budget, unexpected events can suddenly crop up, wreaking havoc on even the best cash-management system. During such times, the business might need to rely on a contingent source of cash to keep the operation running until things return to normal.
- INVOICE TIMELY
The easiest tactic for a business to pursue is to bill a client immediately. Businesses that make sales on credit must ensure that the invoice is delivered within 24 hours of the transaction. Furthermore, companies should track their invoices and send reminders before the payment-due date. Businesses that delay invoice delivery will likely receive their payments late due to the processing time required by the buyer. Business owners should consider delivering invoices by email to ensure rapid and certain delivery of billings.
- SET PAYMENT POLICIES
A sound cash-flow management strategy calls for rapid collection of invoices and timely payments. This means that the business should not pay its bills ahead of time — or late.
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