Managing Your Cash Flow & Why It’s Important
Cash Flow management can be hard for any small business owner, no matter whether you have years of experience or are just starting out. Unfortunately, unless you manage your cash flow carefully, you can risk your business failing and going under.
Why Is Cash Flow Important?
Without cash flows, your business simply isn’t going to survive. If you have more money leaving your business than you do coming into it, this is known as a negative cash flow, and it is something that few businesses can survive. Cash inflow is any coming into your business, such as from sales, loans, and investments. Of course, some inflows, like loans, will need to be repaid eventually, and then will become outflows. Sales are the best inflow but aren’t always enough to keep your business afloat, especially if your business is seasonal, so you will need to consider other means of inflow, and properly manage your cash flow. Here are some ways you can do this:
Keep An Eye On Your Outflows
Outflows are the direct opposite of inflows – They are the money leaving your business. Outflows also include loans, as well as bills and materials. You need to ensure that your outflow is always less than your inflow if you want to keep a positive cash flow, and to do this you always need to have money in your business bank account. As mentioned above, sales aren’t always sufficient to do this, and sometimes you will need additional working capital to cope with the daily expenses of running a business. Workingcapital.co compares different types of working capital, so would be useful to look at if you ever required it.
Forecast & Plan
You need to ensure that you formulate a cash flow forecast. This estimates the how much money you expect to go in and out of your business covering anywhere up to twelve months time. Six to twelve months are the most common types, but you can also get short ones for a month or even a week. Formulating a cash flow forecast will help you to see patterns in your cash flow and plan for times when your cash flow might be negative. During times in which your have a very positive cash flow, you will be able to make equipment purchases or make business improvements, whereas times where you cash flow is less positive or even negative, you will need to ensure that you cut out any unnecessary expenses, and save as much money as possible. Here you would also likely need to tap into your working capital. Visit www.freeagent.com for information on how to formulate your own cash flow.
Owning your own small business isn’t easy, especially when your finances are concerned, but it’s incredibly rewarding when you see your business thrive. Managing your cash flow is a very important part of this. As long as you ensure that your business is taking in more money than it’s spending out, you will be just fine. Just keep an eye on your finances to ensure that you don’t run out of money.