Five tips to manage your cash flow
Too many entrepreneurs ignore these all-important steps to staying ahead of the financing curve
Cash is king – it’s a common saying in the business world. But surprisingly few entrepreneurs take steps to manage their cash flow so they don’t wind up with an empty bank account and nothing to pay the bills.
“One of the main causes of business failure is poor cash flow management,” says Susan Rohac, senior vice-president, financing and consulting, at the Business Development Bank of Canada.
The good news: cash flow management is easy to improve with a few simple steps.
“Getting control over your cash flow helps you prepare for slow periods, plan your financing and have peace of mind,” Ms. Rohac says.
Follow these five steps to get a better handle on your cash flow. prices to better reflect costs. Bonté also unloaded lower-margin product lines and launched an efficiency drive while tightening cash flow management.
The changes had a huge impact. Sales in Bonté’s meat division are up 36 per cent since 2009, while gross profit is up almost six per cent. “We learned to watch our cash very carefully,” Mr. Whittaker says. “You need to always be ahead of the curve on cash flow management.” Next, prepare a cash flow projection for the coming year. This is your early warning system for cash flow hiccups. Use an Excel spreadsheet or accounting software to plug in expected monthly cash inflows and outflows, including anticipated big-ticket purchases.
Use the projection to anticipate slow periods and plan in advance what to do about them. “Through the year, check your actual cash position regularly – once a week or month – against your projection to see how you’re doing and deal promptly with any divergences,” advises Ms. Rohac. Getting money into your business more quickly can save you carrying costs on your line of credit. Some tips: send out invoices more quickly, ask customers to pay electronically and charge interest to slow-payers. Facing an unexpected cash flow crunch? You can raise cash quickly using various techniques: approach your bank for help; check your inventory and assets to see what you can sell off, even at a discount; ask suppliers or your landlord for extra time to pay bills; or offer your customers a big discount to earn some quick sales.