Cash Flow Management Strategy Simply Explained for Your Small Business
What Is Cash Flow?
Firstly, lets explain what cash flow is. Cash flow is the net amount of cash and cash-equivalents moving into and out of a business. Having more cash coming into your business than going out, means you have a positive cash flow.
Negative cash flow can cause big problems for a business that may cause the business to either have a bad credit rating, or to become insolvent. Creating a cash flow management strategy can really help your business to stay on top of your finances and allow you to plan for any emergencies that may come your way.
What Is a Cash Flow Management Strategy?
Simply put, it is a plan that a business creates to monitor, analyse and streamline their cash flow. Having a cash flow strategy will allow you to manage the money that comes into your business. There are many ways in which you can manage your cash flow, such as creating a cash flow forecast and assessing possible risks.
How to Create a Cash Flow Management Strategy
Now that you know the basics, let’s see the areas in which your business should look at in its cash flow management strategy:
Create a cash flow forecast
This is perhaps the most efficient strategy to manage your cash flow. By creating an accurate cash flow forecast, you can better predict your cash flow in the future. Quarterly forecasts are a good time investment, but if you’re on shaky ground with your cash flow, try creating one every week.
We’ve also created a simple cash flow template that you can use: GRID Business Sample Cash Flow Template 2019
A receivable is just outstanding money owed to a business. Getting the money owed to you on time can be a difficult task, but there are ways to speed up the process. Offering discounts for early payments or asking for deposits are just some of the strategies you can use to manage your cash flow. Invoice financing can also help with this problem.
Every business, at some point, will be short of cash. One very handy strategy tactic would be to categorise your suppliers into those who definitely need to be paid straight away, and those who might be open to postponing payment.
Create a Pricing Strategy
Another cash flow management strategy is to look at your prices. Are you selling your products at the correct price? The best way to assess this is to see what your competitors are selling similar products at. Being competitive is great, but underselling your products could be causing you to lose more money than you’re making.
Cash flow management can be time consuming, but is so necessary for a business to keep on top of its finances. While it is especially important for a small business, poor cash flow management can still cause larger, more established, companies to fail. If you’ve already made a start on a cash flow management plan, then great, but if you haven’t, now is the time to start.
Creating a strategy or plan is essential when it comes to your own business and your own livelihood. If you have trouble identifying areas to improve your cash flow, or just need help creating a strategy, consider taking to a financial adviser or accountant.