Cash flow is an important indicator to measure the effectiveness of capital use and business strategies that have been run by a company. Good cash flow management can help the company to grow their business, for example by investing and expanding the target market. Conversely, poor cash flow management can cause losses to the company.
Your business may be earning a lot of money, but you need to make sure that your cash outflows are not equal to or exceed the cash inflows. If you are currently experiencing problems in managing cash flow, this article is the right reading for you. Here are some tips for managing cash flow efficiently.
1. Separate Your Business and Personal Finances
This first step is really important, especially for those who have just started their businesses. Separating business and personal finances will avoid the involvement of your business money for personal use. By doing this, you can also better calculate your business earnings.
2. Create Different Accounts to Separate Savings & Expenses
In addition to separating business and personal finances, you also need to create separate accounts for your cash inflows and cash outflows. This is necessary to help you create financial statements more easily later.
Calculate your gross income and subtract your company’s monthly expenses such as payrolls, taxes, inventory, production costs, and so on from it. Also, make sure that you always pay the company’s debt (e.g. to suppliers) within the stipulated time.
3. Keep Track of Your Cash Outflows
You can’t just focus on how much you earn. You should also be able to manage your expenses wisely. Make sure that your cash is flowing smoothly and that your expenses are lower than your income.
4. Try to Get Paid On Time
Besides managing debt, you also need to pay attention to accounts receivable or unpaid invoices. In order to keep your cash flowing smoothly, make sure that you get paid on time. We recommend that you bill your clients or customers directly right after the transaction.
If a client hasn’t paid the bill yet when the payment is due, then don’t hesitate to remind them. You can use reminders to follow up with them. If you have a lot of clients, we recommend that you use an invoice management system to help you automate invoice generation and track the status of all the invoices.
5. Postpone Investing
Before you decide to invest, you need to check if the condition of your cash is favorable for investment. Ask yourself if you have enough cash to cover large expenses.
Investing can indeed help improve your business and it is a very tempting option, especially when your business is still new. You are probably thinking of expanding your audience by opening a branch office or putting up billboards. However, making long-term investments at the wrong time will only add problems to your business.
6. Increase Sales
Delaying an investment doesn’t necessarily make you unable to increase your sales. There are still some ways you can try like raising the prices of your products or services, implementing product bundling (offering multiple products or services for sale as one package), and giving discounts for those who pay in cash. The last one can help you prevent bad credit and create a faster turnaround on your cash flow cycle.
7. Create Periodical Cash Flow Statements
Lastly, do not forget to create cash flow statements regularly. They provide complete information about the receipts and payments of a company for a certain period. The reports help you forecast your earnings and expenses in the next period, plan for future investments and make better decisions.