“Cash is king’’ – if you are a small business owner you would have heard this expression many times. To maintain a healthy cash flow, you not only need to generate strong revenue, but also be able to collect that revenue.
Here are four tips on how to manage your cash flow:
Pristine financial records and the right accounting partner
Keep all your financial records and books up to date. Obtaining cash flow forecasts and reports from your accountant and regularly reviewing them is key. At Ean Brown Partners we have partnered with Spotlight Reporting to create top notch reports for you on cash flow forecasting. Talk to our team if you would like to take advantage of this. It is also important to use the right accounting software for your business needs. Having a good handle on your business metrics will help you to manage your cash flow and take advantage of any new opportunities coming up.
Clear invoicing policy and payment terms
Consider sending invoices immediately, or on a set regular basis. Of course this depends on the nature of your work. If you are providing a service, you may want to think about asking for a deposit upfront, or a progress fee part way through. This is common business practice. Make sure your payment terms are clear and are communicated with your clients. Set up a process for effective debtor management. For more tips on this, refer to our blog “’Staying on top of your cash flow by getting paid on time”.
Separating personal and business expenses
Mixing your business and personal finances can leave you uncertain about business performance. It is essential to keep them separate. Then you will be in a good position to identify business performance and use excess cash to strengthen and grow your business. Read more on this on our previous blog “’Why you need to keep personal and business expense separate.’’
Building up a cash reserve
Access to cash will make or break your business. A cash reserve provides the cushion you need to manage unexpected events. It also gives you the confidence and finances you need to grow your business. Especially in uncertain times surrounding the COVID-19 pandemic, it is important to be prepared for changes in alert levels and anticipate changes in business practices.