Cash flow is like your company’s bloodstream, keeping your operation’s heart continually beating. There are plenty of ways to assure the money entering your establishment never sinks into the danger zone and remains at satisfactory levels. Here are a few to help ensure your fiscal situation remains strong.
Murphy’s Law states that what can go wrong will go wrong. This truism applies to the working world just as it does elsewhere. Contemplate scenarios where money could unexpectedly disappear. Perhaps a big order might suddenly be canceled or a client skips out on a bill. These eventualities must be anticipated. Design a spreadsheet that allows for easy understanding of expenses and income streams, then perform theoretical exercises by deleting sources of profit one at a time. The relative repercussions will become immediately apparent.
Create a Buffer
Having performed the above task, you now know exactly how much is necessary to keep operating under particular circumstances. Create a rainy day bank account to save you if unfortunate events strike. Have at least enough to stay open for another three months. If personal savings alone are not enough to fulfill this recommendation, research alternative forms of funding.
Late invoices mean delayed payments. When billing falls through the cracks, so does the money associated with those sales. Monitor the system you are using and determine whether problems exist. If you are unsure of how to alleviate these issues, accounting software can provide guidance.
Review your expenses and see what can be sacrificed. Consider stopping payments for anything that might be considered a luxury. If you are unwilling to completely do without, research substitutions that provide the same benefits at a lower expense.
Certain products inevitably sell better than others. Determine what items move the least and pull back on them. Freed-up capital can be immediately applied to higher priority concerns.
Maintain separation between personal finances and business monies. Since many independent operations begin with funding from their owner’s private checking account, it is understandable how this situation transpires. Still, commingling funds is a dangerous practice that increases confusion and creates potential pitfalls. Establish a separate account specifically for business matters and, if you use a credit card, dedicate one exclusively for work charges.
Without proper cash flow, any small enterprise will eventually collapse. Maintaining strategies for monitoring and increasing income will decrease the chance such an outcome ever happens to you.