#TuesdayTips: 4 Pointers for Managing Your Company’s Cash Flow

When it comes to managing cash flow for your small business, there will be a learning process. Keep your head up– you will master it in no time with these 4 tips:

1. Learn and practice calculating the cash flow by yourself. It is pretty simple if you know your revenue and your expenses. To begin, simply identify the period that you would like to calculate. From there, subtract your operating expenses from the business’s revenue from the same period. There you have it– your cash flow!
2. Keep up with some cash reserves. When owning your own business, it can be hard to predict every bump in the road that you will hit. It definitely helps to have a back-up emergency fund just incase you have to pay for any problems that you encounter. It is always a good idea to have enough in savings to cover 3-4 months worth of expenses to ensure that you will never fall behind– even during slow season!
3. Don’t focus solely on profit, focus more on your cash flow management. It is definitely possible to be profitable while still experiencing slow or even negative cash flow. Here is an example: You have sent out 5 invoices for $200 each. Each job costs you $100, so you have profited $500 total. Until those customers pay their invoices, you are in the hole $500, the amount that you’ve invested in the work. This is why it is important to put more stock into your cash flow than into your profits. When you only focus on profits, you might receive an inaccurate picture of how your business is actually performing.
4. Stay ahead of late payments. When you run a business that uses invoices to bill customers, then you completely understand what it means to wait… and wait… and wait. You can consider offering some sort of discount for customers who pay their invoices early, as well as a late fee for customers that miss their payment deadline. This can also mean you need to adjust your contracts with customers, making invoice due dates impermeable. We definitely recommend investing in an invoicing software that does the work for you and spares you those awkward conversations with your customers. We use Ignition to invoice our clients, and we would definitely recommend it to all who use invoices and ACH payments!

If you are interested in learning more about cash flow management, feel free to contact us and we can get you a meeting scheduled with our Bookkeeping professionals!