CAs a budding entrepreneur, cash flow management is an essential skill. Besides obtaining new customers, ensuring that you have enough money in the bank is vital if your new venture is to succeed. Oftentimes, many startups and entrepreneurs have failed as a result of poor cash flow management.
Whether you’ve gone overboard with a new office or made a few questionable financial decisions, running out of cash will result in the death of almost any business. So, before you get started on you next venture, here are some useful tips to help you manage your enterprise’s cash flow.
1. Setting a business budget
Simply put, a business budget allows you to list down and plan your business expenditures. Budgets are one of the simplest yet most underutilized financial tools. Many entrepreneurs without a finance background tend to be overwhelmed by the term budget and many make the mistake of going without one.
With a budget, you’ll be able to control your business spending while ensuring your business remains in the black. By listing down and planning out your expenses, you’ll be able to identify areas where costs and expenses can be brought down. Thus, ensuring that more of your revenue goes to the business and not your creditors.
2. Follow up on your receivables
Closing the deal and delivering goods and services to the customer are all well and good. However, there’s always the matter of payment. On paper, your business is looking good and turning a profit with healthy revenues.
In reality, things may not exactly be so rosy if a significant amount of your receivables are left in arrears. When invoicing customers, try to collect payment as soon as possible upon completion of a project or the successful delivery of foods.
Some customers have an unfortunate habit of delaying payment which can be detrimental for your business. If left unchecked, your customer could even try to get away without paying for your goods or services.
To keep on top of your receivables, assign a trusted employee to this task or utilize accounting software which allows you to keep track of debtors.
3. Have an emergency cash reserve
The nature of business is uncertain, and the best laid plans can be laid awry without warning. This is why it’s vital that you always have an emergency cash reserve on hand. With some cash stashed away, you’ll be able to pull through when the going gets tough.
As a rule of thumb, you should always have at least 10% of your revenue stored away as a reserve. So don’t waste it in gambling, even if you like betting on football odds don’t spend those 10% on it.
Keep topping it up every month and your business will be able to resist even the coldest of winters.
4. Focus only on the essentials
Having set up a budget, you should have a clear picture of your expenses in the next few months. Hence when you’re planning out your expenses, you’ll want to focus only on the most essential purchases for your business.
This means forgetting swish offices and making do with less. Frivolous purchases outside of your business operations are a luxury for another time. By adopting this approach, you’ll be able to free up cash in the most unexpected of areas.
5. Stretch out your payables
As an entrepreneur of small business owner, you’ll want to stretch your money for as far as it can go. Thus, when making deals with vendors and suppliers, always try to negotiate for extended credit. Spreading out your payables, you’ll be able to sustain a much healthier level of cash flow for your business.
Managing a business is no joke and neither is ensuring that you have a steady cash flow. However, with some careful management and discipline, anyone can do it.
The article is authored by Benjamin Lee.