Cashflow is the amount of money flowing into and out of your business.
And managing it is a huge factor in determining how successful your small business is going to be.
9 out of 10 small businesses fail.
But the number one reason for why they fail is a lack of capital.
As a small business owner, you likely don’t have access to treasure troves of cash.
Therefore, managing your cash flow is of the utmost importance.
In this post, you’re going to learn 6 essential steps for how to do this effectively.
These tips may seem simplistic. But the truth of the matter is that they’re actually foundational.
If you’re skipping out on any of these crucial steps, your business will suffer for it.
Let’s dig in and talk about it.
1. Monitor Where Your Cash Is Going
Your small business brings in a certain amount of cash every month.
Some of that cash will go back into the business to pay for expenses, while the rest will make up your business’s net profit margin.
But here’s the thing.
A lot of small businesses simply spend too much on things that don’t matter.
Monitoring where your cash is going, and making sure that you’re staying on top of every single dollar that flows back out of your business, is crucial.
You work hard for every single sale.
And leaking potential profits while paying for things that your business doesn’t need is one of the biggest cashflow mistakes that small businesses make.
Learning how to calculate your cash flow margin will help you with this crucial step, and give your company it’s best shot at long-term survival.
2. Cut Costs To Minimize Waste
While paying for things that your company doesn’t need is an obvious waste of money, it’s also possible to save money on things your company does need.
For example, looking for more competitive rates for services, shopping around for better prices on inventory, getting better deals on equipment service repair, etc.
These are all simple, yet effective methods for saving your company money.
The problem with these types of activities is that they can tend to eat up a bit of time.
And as a business owner, time is certainly something that you probably don’t feel like you have a lot of.
But here’s the thing.
If you can save even just a little bit of money every month by switching providers or finding a new supplier that costs less, this can add up to big dividends for your company over time—and can really help your cash flow.
3. Stay On Top Of Invoicing
Unless you were born a bonafide number-crunching CPA at heart, you’re probably not a huge fan of invoicing.
And unfortunately, in many service-based businesses, this is an area where things can tend to fall behind.
But staying on top of your invoicing is crucial to maintaining the fastest and most efficient cash flow possible.
If you start to fall behind on invoicing, you’re going to start struggling at those times of the month when your biggest bills are due.
For best results, make invoicing an absolute top priority.
Consider it an essential lifeblood function of your business.
4. Get A Line Of Credit
Racking up needless credit for your small business creates its own set of problems.
But not having any credit can be absolutely destructive if your business falls on hard times.
Opening a line of credit, and just keeping it open without using it, can really set you up to handle emergencies better, especially if you have limited capital to work with.
For example, if you suffer a major equipment breakdown that’s going to cost you a lot of unexpected money to repair, using your credit to pay for the repairs and then paying it back over time may be the best and smartest financial choice.
Emptying your capital reserves for such a repair could put you in the red.
Or even worse, it could put you under.
5. Avoid Impulse Spending
One of the great things about small businesses is the lack of red tape.
As the business owner, you pretty much control everything.
If you decide to pivot or make a move, you can take action almost instantly.
This gives your business virtually unparalleled opportunity for fast paced growth.
But it also opens you up to impulse spending that can drain your vital capital reserves.
There’s a saying that old-school carpenters use:
“Measure twice, cut once.”
Carpenters use this methodology to avoid the waste of cutting a board too short to be used.
As the business owner, you can employ the exact same principle to help you avoid wasteful spending by always thinking twice about a major purchase before making it.
Sometimes you’ve got to spend money to make money.
But it’s very important to be wise and calculating about this as well.
6. Be Aware Of Payments That Won’t Hit Until later
Some small businesses run into trouble when they expect payments to be paid before they actually come in.
For example, you might invoice a large contract with a payment due date 30 days down the road.
But what happens if that client takes 60 days to pay instead of 30?
Sure, you can send them a late-payment notice.
Sure, it’s frustrating.
But that still leaves your business without that cash that you were expecting for a whole additional month!
It’s crucial to stay prepared for these types of situations.
And once again, with limited capital, this means that you sometimes have to pinch pennies, double check everything, and make double-sure that you’re covered—regardless of what happens.
There you have it.
6 steps to help manage small business cash flow to give your small business its best chances for survival.
All that’s left now is to get to work.
You’ve got this.
Now get out there and make your business the success it deserves to be.