How to Manage Your Business Cash Flow

Cash plays a critical role in your business. There’s even an adage that says “cash is king”. With that said, it is only crucial to monitor your cash flow. At the very least, you want to make sure that the inflow is bigger than the outflow. You also need to ensure that you don’t find it challenging to make ends meet as you’re paying your suppliers and employees while you’re also waiting for your customers to pay. That’s the main struggle, really, and has caused a lot of businesses to fail.

According to a recent survey, 82% of small businesses have closed down due to cash flow issues. It’s the top small business risk followed by the lack of market need at only 42%.

Cash Flow Management Tips

Fortunately, proper cash flow management can significantly reduce this risk. Here are a few tips on how to do so:

1. Monitor your cash flow. You can do so by making cash flow statements. These are financial documents that record all the cash inflows and outflows made within a given period. This will give you a pulse on how your business is performing.

1. Create cash flow projections. Cash flow projections are financial records that seek to estimate the cash flow activities that haven’t happened yet.

Don’t just make idealized versions of your cash flow, though. It is essential to back it up with data from past cash flow statements and any pending items, for better accuracy. Don’t forget to account for any fluctuations and possible delays as well. This will allow you to identify potential financial risks and prepare for them beforehand.

1. Get rid of latent or inactive assets. Do you have any equipment that you no longer use? You might be able to turn them into cash by selling them. You’ll also be helping out other business owners as well who need it but can’t afford to pay for a brand new piece of equipment at the moment.

On the other hand, you might also have any old and outdated inventory that you can convert into cash by selling it to customers at a discounted price, or to offer as a freebie in order to improve customer engagement that in turn will result to an increase of loyal customers and of course, later on, actual cash.

1. Improve payment methods. Receive payments faster by providing online payment methods and utilizing mobile tools. We highly recommend prioritizing this method over others.

According to a recent study published by Entrepreneur, over 40 million people have used a form of online payment during our global health crisis in Latin America alone. Cut costs. Honestly, unless you adjust the prices of your products and services and improve your marketing strategy

1. to attract more customers, we can only do so much to influence cash inflow. The next best thing that you can do is to manage your expenses.

How to Manage Expenses and Cut Costs

Here are some of the ways to minimize your business spending:

• Research on costs. Whether you’re looking for a space to rent or applying for business insurance, it’s best to research and consider multiple options before finally paying for anything. In this way, you’ll discover the best options with the lowest interest rates and most flexible payment terms.

• Schedule your payments. You can wait until the actual due date to make a payment in order to make use of your money for as long as possible. On the other hand, you must also ensure not to get them delayed as this could lead to higher interest rates and penalty fees.

• Take note of discounts and promos. Most companies announce incoming discounts and promos beforehand so be sure to mark them on your calendar. This is even more important if you’re planning to buy a big-ticket item.

• Save up for your big-ticket items. Speaking of such expenses, it will be easier for your budget to make these purchases in cash after saving up for them instead of applying for a loan, tapping into your capital, or using a credit card to do so. In fact, there are even stores that offer discounts for upfront cash payments.

As a quick side tip, rewarding the customers that pay early is a good way to improve your cash flow. According to the Business Development Bank of Canada, there is a potential 37% annualized return if you play it right.

• Don’t buy brand new office equipment. Maybe you don’t even have to purchase these items at all. Consider getting them secondhand or borrowing them from a friend or family member. Take a look into alternative methods as well.

This will allow you to invest more money in the things that really matter to your company. For instance, instead of getting a new copying machine, wouldn’t it be better to go paperless? Not only will you be saving money from the cost of the machine, but you’ll also be helping the environment which is always good to boost business reputation.

• Budget! Finally, you need to learn how to budget your money per week or month in order to control and prepare for upcoming expenses. This will also discourage you from unnecessary spending.

Personal and Business Budgeting Tips During a Recession

To keep our information relevant during this global pandemic, here are budgeting tips that you can do during a recession that can apply for both your personal and business financial management.

• Separate personal and business bank accounts. It can be exceedingly challenging to manage your personal and business finances if they are combined in one place. After all, it is easy to spend more than what you have budgeted for each portion of your money if they’re together. Instead, open separate bank accounts. This will make tax computation easier as well.

• Set up an emergency fund. The next thing that you can do in order to make budgeting easier, especially during a recession where unplanned expenses could easily show up is to set up an emergency fund. This is a savings account that you can tap into when an unbudgeted expense crops up. We recommend setting up separate emergency funds for your personal and business needs.

Failing to set up an emergency fund for one aspect of your financial life can put the other at risk. For instance, let’s suppose that someone in your family has gotten sick. Not having a personal emergency fund to tap into might force you to “borrow” your capital. On the flip side, not having a business emergency fund can pressure you to apply for a personal loan just to keep it afloat. Diversify your investments. Your business should not be your only source of income. You should definitely consider

• other worthwhile investments as well, such as various financial products and passive income sources.

• Consider taking out a loan. Finally, those who don’t have an emergency fund set up can consider applying for a loan in order to prevent your monthly budget from getting set back. As mentioned, choose one that gives the lowest interest rates and most flexible payment terms possible.

Two Types of Loans

Speaking of loans, there are various loan plans out there that you can apply for. They can be divided into two categories: secured and unsecured loans.

Secured loans are programs that require collateral in the form of a business asset that the lending company can take possession of in the event that you can’t make the repayment.

On the other hand, unsecured loans are programs that don’t require any form of collateral. Hence, the lending company won’t be able to take hold of any asset even if you fail to make the repayment. It can severely impact your credit score negatively, though.

Secured Business Loans: Pros and Cons

Each of these loan categories has its own pros and cons. Secured loans, for instance, are great for those who are looking for lower interest rates and more flexible payment terms.

They are also an option for people who have yet to build up their credit score or business history and reputation.

Lastly, secured loans usually offer a higher credit limit since lending companies feel more confident that they’re going to get their money back in one way or another.

The biggest downside, though, is that you’ll be losing whatever asset you have used as collateral if you do fail to repay the loan, so make sure to make your repayments diligently to avoid losing them.

Unsecured Business Loans

It’s easy to understand why people opt for unsecured business loans, especially if they haven’t built their assets yet and simply can’t afford to lose any of it.

However, there are a few downsides to unsecured loans. First, they usually come with steep interest rates and stricter payment terms.

The line of credit can also be pretty limited especially if you haven’t established your business history yet, or a good credit score. After all, those are the only factors that the lending company will use to ensure repayment along with a great deal of trust.

To Sum Up

Cash management can truly be a struggle for business owners, especially for those who have just started a new business. Fortunately, there are ways to improve money handling as a business owner.

Understanding and learning how to create cash-related financial statements such as cash flow statements and projections are essential to get a better insight into how your business is doing in terms of income and expenses.

Taking steps to improve customer payment methods and monitor expenses also play major roles in attaining business success.

For us, the best way to monitor expenses is through budgeting. Sticking to your business budget can prevent unnecessary spending and help track where your cash is going.

Finally, it always helps to establish an emergency fund as a safety net in case of unplanned expenses. Those who don’t have an emergency fund, though, can also consider applying for either a secured or unsecured loan depending on their needs and preferences.

Secured loans are great for new business owners without an established business history and stellar credit score yet. This will also provide a higher line of credit with lower interest rates. They do require collateral, though.

On the other hand, those who don’t want to put their assets at risk can always look into unsecured loan options that don’t require any collateral at all.

emergency fund, though, can also consider applying for either a secured or unsecured loan depending on their needs and preferences.

Secured loans are great for new business owners without an established business history and stellar credit score yet. This will also provide a higher line of credit with lower interest rates. They do require collateral, though.

On the other hand, those who don’t want to put their assets at risk can always look into unsecured loan options that don’t require any collateral at all.

BIO

Jim Hughes is a content marketer who has significant experience covering technology, finance, economics, and business topics. At the moment he works as content manager in OpenCashAdvance.com.