8 Tips to Avoid Cash Flow Problems in Your Business

Any bookkeeping, business or tax article contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor can it be used to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

Always Have A.D.E.Q.U.A.T.E. Cash: 8 Tips to Avoid Cash Flow Problems in Your Business

September 2, 2018

The secret to staying long in the business is being able to streamline your cash flow in such a way that there is always more inflow than the outflow.

Negative cash flow, meaning, you spend more than you earn, threatens the existence of your business since it shows that you lack the capacity to pay your suppliers, creditors, and even your employees. This could mean the end for you if you do not know how to generate inflow to bounce back into your normal operations.

Here are some tips to avoid cash flow problems:

Avoid impulsive spending

Starting a business can get you excited about purchasing everything you need—or so you think. You have to consider every purchase you make; may it be equipment or supplies. Make sure that the equipment you buy helps in generating a profit and the supplies that you get are really necessary for running your business. Keep in mind that every dollar spent is a dollar taken out of your income. A coffee machine might make your employees delighted, but you might want to delay that a little in the early stages of your business.

Develop a good relationship with lenders

Lenders and banks are like friends. They help you especially when you are just starting out and need some cash to boost your capital. As such, you have to treat them like you would treat a friend. You have to build a solid foundation of trust to develop a good relationship with them. You should be able to pay them what they lent you and should you have unforeseen circumstances, you should keep them informed and never run away from them. With a good relationship with them, they are more likely to treat you favorably should your business need future financial assistance.

Estimate your sales volume modestly

It’s good to have a positive mindset when you open up a business. But in considering potential cash inflow to your business, it would be better to be a realist in estimating it. You can use different standards such as actual sales volume in the past as a basis for your forecast. Estimating your sales volume conservatively can help you be more tactful in managing your cash flow.

Quantify your cash flow

A good cash flow keeps your business running. There is no better way of streamlining it than creating a cash flow budget. You can base your forecast off of your past income and expenses. It does not end there, though. If you can get more details about a specific cash flow, like the common due date of an electric bill, it would also be helpful so you know when you actually need some money to pay off for such expense.

Unpaid balances should be collected/paid

You should send out invoices promptly and be quick in chasing overdue bills. It’s also better to implement a clear and strict payment policy, such as penalizing late payments. It could also be helpful to give your clients some discount to encourage them to pay early. Likewise, you would also want to not be behind in paying your suppliers. It’s important to keep track when you have to pay for your dues. Paying on time can help solidify your relationship with them.

Anticipate problems before they arise

As much as positivity is highly regarded in doing business, being conservative about your cash flow and anticipating problems head-on can do your business better. You should regularly update your cash flow forecast, taking into consideration changes in market conditions. Also, keeping an eye on your customers and suppliers who may be in trouble can help you resolve matters immediately.

Take control of your inventory

Besides managing your cash flow, being in control of your inventory is just as important. You should be able to track all of your inventory so you would know which needs reordering, and which items you have in stock. An efficiently-managed inventory system will have a positive impact on your cash flow because you will never be holding too much of it and you would know when you need the money for it.

Equip your business with a cash cushion

One of the most preventative measure from running out of cash is maintaining a cash cushion. A cash cushion is a separate fund set aside for lean periods. You should only use this when your business does not generate enough cash inflow to pay off all of your necessary expenses. You should never run on zero balance and rely on your stream of sales just to get by.

I hope this makes it easier for you to remember. Just bear in mind that in order for you to keep your business running, you should have A.D.E.Q.U.A.T.E. cash.

If you need help with creating your business’ cash flow projections, bookkeeping, or tax preparation, contact us today at admin@fas-accountingsolutions.com or 832-437-0385.