Experienced entrepreneurs know navigating cash flow cycles is an art. Businesses go through natural, predictable ebbs and flows. Newer business owners, however, are unlikely to have large cash reserves, and one wrong turn can be detrimental.
That's why it's so important to have a cash flow management plan that empowers the business to maintain long-term health, which requires careful planning.
The following three steps provide a guide to navigating this seemingly daunting maze:
Step 1: Don't take on more debt than your business can handle
Step 2: Analyze operations - Cash flow is closely tied to a business's internal operations. It is important for business owners to monitor trends and analyze their products and services regularly.
Step 3: Scale steadily - This is the top area that people either ignore entirely or give too little attention to. Your financials are your business's ultimate metric, keep them clean and well organized, and look at them to find areas of incremental improvement. Businesses can use their financial records to forecast areas of opportunity — as well as potential risks and weaknesses. Properly maintained financial records will give you a quick look at where you are spending your money. This will help you identify where you can eliminate unnecessary or overpriced expenses. Using this data, business owners can identify areas in which to scale incrementally. This step-wise approach can help small businesses manage their cash flow while pushing their growth plans forward.
Here are 3 cash-flow strategies that financially savvy small business owners are using today to get that competitive edge:
Understand your operating cycle: Regardless of size, every small business must deposit, monitor, and manage cash receipts; make payments; fund purchases; and invest in the company. Reviewing and understanding each step in this cash-flow cycle can help a company work more efficiently.
Review your payroll process: If you pay your employees twice a month instead of every other week, you will be managing 24 payroll periods instead of 26 during the course of a year, making your company more efficient.
Access capital at the right time: Capital is so important to growing a business. If you don’t have what you need for your business’s development, all you’re doing is paying your bills and just getting by. Having enough working capital to pay those bills on time every month is important, but to take your business further, it’s growth capital you should be paying close attention to. To do that, you have to understand how growth capital works, what it does, and how it helps your company develop from a small business to something much larger and stronger.
Business owners don't become expert cash flow managers overnight, both their skills and their businesses will take time to build. A commitment to controlling debt, optimizing operations and smart, steady growth is, ultimately, the key to healthy cash flow.