1. Create a budget
As a business owner you should sit down and put together a cash flow budget. A cash flow budget is an estimate of all cash expected in and cash you know is going out during a set period. Try and create your budget ‘worst case scenario’ so you have wiggle room for any changes.
2. Monitor the results
This is something you should be doing monthly, sometimes weekly if cash flow it tight.
If cash flow is less than anticipated, figure out the reason for the shortfall. If cash outflows end up being greater than expected, understanding the cause is also important. This will help you plan more accurately down the track.
3. Have a Plan B
Unexpected events can suddenly crop up, wreaking havoc on even the best cash-management system. When this happens, the business might need to rely on a ‘plan b’ source of cash to keep the business running until things return to normal.
4. Invoice quickly & on time
A key element of cash flow management is controlling the timing of your invoicing. The sooner you send it out, the sooner it will be paid. You do of course get a handful of stragglers here and there, when this occurs, it can place a strain on the business. Which brings me to my next point…
5. Payments follow up
Follow up of overdue invoices is key. Don’t leave it to the last minute, make the call or send the email the day the invoice is overdue. This helps set clear payments terms and sets the bar for what is expected.
For invoices you owe – these should be paid when they are due, not before and not after. This ensures that your cash is working hard and allows times for you to rein in those accounts receivable.
Struggling with cash flow and don’t have a plan?