Cash flow management for small business is vital to the success of any small business. Cash flow is the term used to describe the movement of cash in and out of the business. It is important to monitor this and make a plan to ensure there is sufficient cash to pay expenses as they fall due. Managing cash flow can be a challenge for many small businesses, especially in the start-up phase where a lot of money is being paid out and not a lot is coming in. Bookkeeping services help you in manage cash flow.
Best 8 Effective Cash Flow Management for Small Business
- Invoice promptly – Once work has been performed or products sold you are owed money from your customer. It is important to send out invoices as soon as possible. Many small business operators make the mistake of being so busy doing the work that they leave little time to do the invoicing.
- Collect Receivables – Ensure you follow up outstanding accounts. Send reminder notices if necessary but nothing beats a phone call direct to the person responsible for making the payment. If the other business is having cash flow problems they may be holding back payment in order to improve their cash position.
- Offer clients a discount for early payment – This is a great way of receiving prompt payment from your customers. If your business has debt then it is probably paying interest of approximately 7%. By bringing in the payment early you are saving the difference between this interest and the 3% discount which is 4%.
- Pay creditors only when they fall due – While in sales we want to receive payment as soon as possible, with your purchases we want to delay payment for as long as possible. This is free credit to your business. Take note of payment terms and don’t be afraid to renegotiate them with your suppliers.
- Set up a line of credit with your bank – A line of credit is a credit source extended to your business from your bank. It is a source of funds that are available in an instant if they are needed. Interest is only charged on the amounts used rather than an entire lump sum loaned making it an attractive facility.
- Reduce your inventory – You need to view your inventory as cash sitting on your shelves. The more inventory you have on the shelf the less money you have in the bank. Do you really need to hold so much stock? If deliveries are regular and suppliers are not offering discounts for bulk purchases then there is really no reason to be holding a large amount of their stock. There is a risk that inventory can become obsolete, be stolen or pass it’s used by date making it no longer saleable and costing your business money.
- Consolidate loans – If your business has a lot of debt, which may come from a business loan, bank overdraft, line of credit and credit cards, you may be able to refinance this debt into one loan with one payment lower that the ones you currently pay. By consolidating debt it often gives people a clearer picture of their business and allows them to see a path to repaying the debt.
- Have a cash reserve – Expect the unexpected! It doesn’t matter how carefully you plan and manage your cash flow from time to time something unexpected may come up and it is important that you have the ability to access some emergency cash if necessary.
Cash Flow management is the Fuel of small business that runs a small business successfully.
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