As a small business owner one of the great challenges you probably face on a daily basis is your cash flow. You’ve head the old adage “cash is king”. That couldn’t be truer when you’re running a business. Not enough cash and you’ll find your business in trouble or closed very soon.
You Need a Cash Flow Statement
If you’re not getting a monthly cash flow statement from your accountant you should look into it. The purpose of the cash flow statement is to keep track of how much cash your business has on an ongoing basis. It also provides you with a picture of where your money is coming from, as well as how your money is being spent.
Your monthly cash flow statement is your early warning system, which can alert you to those manageable minor problems before they grow into major problems.
Improving Your Cash Flow
Keeping an eye on your business’ cash flow—whether you do it weekly, monthly, or some other schedule based on your business practice —will help you adjust your actions and business practices, so you can meet your immediate financial obligations. It will also help you determine your upcoming needs for cash or credit and anticipate any potential problems.
Of course any business will get into trouble when their expenditures increase faster than their revenues. Find a way to maintain a tighter control on any discretionary expenses.
Improved or updated purchasing practices within your business can help decrease unnecessary or wasteful spending.
- Don’t tie your cash up in excessive inventory.
- Periodically review your inventory with an eye for reducing it.
- Preserve your relationships and good standing with supply distributors by paying them within the terms of sale. That way, when you are in a jam and need additional time to pay your bills, your distributors will be more likely to grant you an extension.
- Wait until the deadline to make your payments. While I recommend paying your distributor in a timely manner, that does not mean that you need to pay the bill before it’s due. Waiting until the deadline will improve your available cash.
Until you build up your cash reserves, your shop will likely be in a vulnerable financial position.
Again – Cash is King as they say – so be sure your business has enough to run your business – but also be ready for a rainy day. Those come when we least expect them.