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7 Tips for Managing Your Company’s Cash Flow

7 Tips for Managing Your Company’s Cash Flow

What even is cash flow management? It’s knowing and controlling (as much as you can) the money coming in and going out of your business. You started a business for a reason, and I’m sure that having money struggles, barely making it from customer payment to customer payment isn’t one of them. The goal of course is to make sure the input is higher than the output. It’s often said that businesses don’t really make money for the first few years, but any company could get to a point where even though they’re making sales, the business just isn’t making money and the owner doesn’t know why. This is where cash flow management comes in. Here are some tips to help you stay in the black:

1.       Know your market – Are you in e-commerce? Make sure your price point is in line so that you’re making a profit on the products you’re making/selling. In a service industry like construction? Make sure your jobs are priced to cover materials, labor, and any other costs you’ll have in order to complete it. Your pricing should make it so you can pay for your overhead costs, but also not be wildly over your industry’s standards or outside what people are willing to pay for what you sell.

2.       Evaluate Expenses – If things are tight, take a look at where your money is going (a great reason to have a bookkeeper, because then you have someone who’re regularly in there, categorizing your books, and they’d be the best person to talk to about any categories that look high, recent changes, etc.). Cut out any unnecessary spending, and see if there are free options for those categories (like advertising, there are free options like your Google Business Page, social media…). Expenses are a reality in every business, but if you’re hemorrhaging money from somewhere you didn’t realize, it may be something that can help in the short term.

3.       Eliminate Personal Expenses – I’m giving this it’s own number because it’s SO IMPORTANT! I can’t express even for business without cash flow problems, that it’s a priority not to pay your personal expenses from your business accounts. I believe I’ve talked about “piercing the corporate veil” before, but want to say it again for the people in the back. Basically this strips you of the protections creating a separate legal entity for your business provides. The right way to handle it is to pay yourself. If you’re incorporated, you’re probably required to pay yourself a “reasonable salary” anyway. But even if you’re doing that, you can take additional draws if you need to.

4.       Accounts Receivable – Keep up on this, and if you don’t have time, have someone in charge of it. Make sure your customers are current and stay current with the payments they owe you. If they pay you by check, make sure you’re depositing them to the bank. You don’t want to get into financial trouble because your customers pay you on time but you have a drawer full of checks you haven’t taken to the bank.

5.       Know Your Numbers – Get familiar with what you need to break even every month because there’s no hope of making a profit if you aren’t even breaking even. Regularly keep track during the month of whether or not you’ll hit your target. This isn’t to say you have to do all the work yourself, but creating a budget isn’t just for households. It’s an important part of having a business too.

6.       Work With Vendors/Contractors – If you know your account is shy on cash but you have a customer check coming soon, see if you can work with vendors by negotiating on payments. Work with your contractors and see if you can post-date their check or if they can cash it once you have the money in your account.

7.       Avoid Lenders – If at all possible, avoid opening a business credit card or line of credit, or taking out a loan to dig yourself out of a hole. Yes, it may help you in the short term, but you’ll now have debt hanging over your head and be adding another monthly payment to your other required expenses.

Cash flow management isn’t only important for newer businesses, it also determines if you can scale and grow, and can get you through leaner months if your industry is seasonal or cyclical. Just remember that you can do this. You just need to get your hands dirty, know your business, and take control!


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