For any business, but especially small businesses, cash flow is key to achieving success. You need to ensure that your business’ cash works for you, and not the other way around, to allow your company to thrive.
One of the first steps to take to improve your cash flow management is to get your invoicing process right. Once you have provided your service, or delivered a product to a client, send an invoice straight away. The sooner you send an invoice, the sooner you will be paid, and this is a good start when trying to manage a healthy cash flow.
Besides making sure that you send invoices as soon as possible, here are 5 important habits that may also aid you in maintaining a healthy business cash flow:
By keeping your business’ books up to date, you can easily see in what financial state your business is in. Therefore, regularly update your accounting information as this will give you a clear indication of the status that your business’ cash flow is in.
Collecting payments from clients is never easy. You need to be direct and fair, without being too lenient. Often, a polite invoicing plan will get you far, but should it be necessary to take action against a client who is not paying, you should not be afraid to take formal action.
To avoid this, keep a close eye on your accounts payable to ensure that your payments are received. As soon as you miss a payment, follow up. Receivables age and lose quality, which is why it is better to act sooner rather than later.
Having a clear and simple accounting system is crucial for your business’ success. It will enable you to keep track of your business’ finances, manage your cash flow better and plan.
If you are not confident in managing accounts, hiring an accounting professional to do so on your behalf may benefit your business immensely in the long run.
If you want to have a clear idea of what is going on in your business’ finances, it is important that you keep your personal and business finances separate. Doing this will allow you to see exactly how much money your company is generating.
Having cash available during emergencies can make or break your business. Therefore, building a cash reserve is the ultimate step in managing a healthy business cash flow. This reserve will act as a cushion should you unexpectedly require cash.
Besides having cash available in case of emergencies, a cash reserve also puts you in the favourable position of taking advantage of opportunities that may help you to grow your business.