Cash flow management is all about striking a balance between expenditures and revenue, then basing your company's financial plan off these projections. Failure to attain this balance can have disastrous consequences. After all, if your small business can't pay its bills or doesn't have enough of a cushion for unexpected expenses, you may end up having to close your doors.
A frustrating aspect of managing your company's cash flow is that you don't get paid for sales as soon as you make them. However, as Entrepreneur magazine notes, you can still take steps to improve receivables and expedite revenue collection.
"The basic idea is to improve the speed with which you turn materials and supplies into products, inventory into receivables and receivables into cash," the source explains.
For instance, engage in regular clear-outs of old, outdated inventory. Even if you have to accept low prices for products, that's better than no revenue at all. Additionally, keep close tabs on invoices, issuing them promptly and following up with clients who are slow to pay.
Unfortunately, most companies have to deal with customers who drag their feet when it's time to pay. You can handle repeat offenders by instituting a policy of cash on delivery, offering discounts if they start paying their bills in a more timely manner or refusing to do business with them altogether.
Don't get so caught up in monitoring accounts receivable that you forget to keep a close eye on your expenses. It can be tempting to rest on your laurels and bask in the glory of steadily increasing sales, but failure to cut or control rising expenses could present a big problem for your business down the road.
The source advises staying in close contact with suppliers. This will likely make them more trusting and understanding in the event that you have to delay a payment. Additionally, approach vendors' offers of discounts for earlier payments with caution. Although on the surface these may present a chance to reduce overall costs, they could result in expensive loans that aren't worth the trouble.
With so much money coming in and going out, it's important for your company's checking account to be up to the challenge. Consult with a My Bank financial services expert to select the perfect account for your day-to-day business cash needs. Drop by your local community bank branch, give us a call at 1-888-mybank4 or check out mybank4.com.