Let’s talk about cash flow. Cash flow is the money moving in and out of your business. Tracking your business’ cash flow is particularly important. You should track it either weekly, monthly, or quarterly. There are two kinds of cash flow. If you’re earning more than you’re spending, you’ve got a positive cash flow. But if your expenses are higher than your profit, you’ve got a negative cash flow.
Cash flow is something not all business owners know how to manage. This is why most businesses fail. You shouldn’t confuse profit for cash flow because these are two different things. Profit is the amount of money that you have once you’ve deducted all your expenses from your earnings. Cash flow is the amount of money a business has at any given time. Just because a business is profitable doesn’t mean it has good cash flow and vice-versa.
A business that is profitable but has bad cash flow is unable to pay its bills. On the other hand, a business takes out a loan to solve its cash flow problems and pay its bills. They might suffer more losses in the future and end up being in debt. That’s why a balance of profitability and positive cash flow is necessary for a business to survive. And the only way to have a positive cash flow is if you learn how to manage it. Here’s how:
Separate your personal account from your business account
Make monitoring your cash flow easier by creating a separate business account. If you were to use your personal account for your business, good luck. You’ll have plenty of trouble trying to organize your business’ expenses and savings. When you enroll your business for a bank account, go for a high-interest checking account. A checking account is better for business. It allows you to make more transactions with fewer restrictions and fees. What’s great about this checking account is that it provides interest. Not all checking accounts have interest. So if you find one with interest, definitely choose that.
Track your cash flow using software
You have to track your cash flow. That is the only way for you to see if you have a positive cash flow now and in the future. Monitoring your cash flow will allow you to plan for the future of your business. The first thing you should take note of in your cash flow is your steady expenses. These are the expenses that you know you’re going to make regularly (taxes, bills, rent, etc.).
That way, you’ll have a plan on how much money you’ll need to save to pay these without suffering a big financial loss. The next thing you have to note is the amount of money that comes into your business. Do you notice any patterns? How can you plan out your budget so that you’ll be able to pay for your bills and still earn a good profit? Remember to prepare for any unplanned expenses as well. There is plenty of software that helps with monitoring and analyzing your cash flow.
Cut down your expenses
Are there things you’re paying for that aren’t necessary? Are there any costs you have to cut to make your cash flow better? Do you have to cut your employees’ salary to make things work? If you need to cut down on costs to get a positive cash flow, do it. As long as it means your business survives.
Find ways to make more money
It’s important to cut down your expenses. But it’s even more important to find ways to make more money. You can do so by making more sales or selling equipment you no longer need.
Send out invoices faster
The faster you get your invoices to your customers, the sooner they’ll pay. And the faster money comes into your account. Instead of sending out invoices on paper, send them through email. There is software for creating invoices as well.
Offer many modes of payment
Give customers different options for payment for a faster transaction. Offer them options for mobile payments, online bank payments, and over-the-counter payments. Mobile payments are by far the easiest way to send and receive money nowadays. So definitely make sure to offer mobile payments.
Give discounts or deals
Another way to get your customers to pay faster and to have more sales is to give discounts and deals. For example, if they were to order earlier or on a certain date, they get a discount. Ensure that you aren’t giving them too good a deal that you end up with a big financial loss.
Remember, a good business doesn’t only rely on profitability to survive. Positive cash flow is what keeps a business going. If you don’t have control over your cash flow, your business is less likely to succeed. Make sure to check your cash flow regularly and find ways to have cash flowing into your business more than it’s flowing out.