Five rules for effective cash flow management

Fin24 blogger Anderson Lele writes:

MAKING sure that your company is a viable business means that you have to pay attention to and manage your cash flow effectively. Business experts agree that one of the most common reasons for the failure of small businesses is that they run out of cash.

As a successful entrepreneur, you know that careful consideration must be given regularly to your business operations; this also should include following some basic rules for examining and managing your cash flow.

1. Have a cash flow budget 

Even though you have a spreadsheet of your revenue and expenses, you need a sheet that reflects the timing of how and when cash flows into your company. It’s also critical to have projections of what you think your cash flow will be in the coming quarters.

You can base some of this information on your contracts and payment terms that you have with your clients. This budget will let you know if the cash flow that you have is adequate to cover the amount of expenditure that you have ahead.

Being alerted to shortfalls ahead of time can help you elicit help from others.

2. Keep your costs under strict control

Make cuts whenever and wherever you can to minimise your overheads. You’ll find that leasing furniture saves money, taking advantage of inexpensive marketing strategies helps, and doing some of the tasks that you might hire others to do can help you get through a difficult time.

It will be easier to add to the cost of overheads as your company grows rather than cut services and operations because your cash flow won’t cover the obligations that you have.

3. Don’t let your cash be slowed up in accounts

It’s imperative that your clients pay on time every time; by offering incentives for early payment you can improve the status of your finances.

You must send out your invoices after work is finished or the product has been supplied, track the records, and make sure that late payments are dealt with quickly and efficiently.

If you have a process in place, you’ll let your clients know that you expect payment when services or products are rendered.

4. Establish a payment reputation

In order to make sure that your company has a good reputation, you must meet your financial obligations on time.  Pay your bills when they are due and after you have established yourself as a professional company, ask for extended time if you need it.

5. Have a plan in place for shortfalls

If you have cash reserves on hand, your company will never experience a shortfall that can dramatically impact your bottom line.

If you can’t manage to have some savings ready for an emergency, by doing an examination of your cash flow projections you can arrange recruitment finance which will alleviate your cash flow problems until you have enough funds to cover your costs.

If you simply follow the rules listed above, you’ll find that your company will be a vibrant, thriving business with funds that cover expenditure effectively.

– Fin24

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