BBB: Cash flow tips for businesses | Business

As a small business owner, you know how important it is to maintain a steady cash flow. With the high cost of doing business in today’s economy, however, many small businesses are struggling to keep their cash flowing freely.

Consider the following best cash flow practices as a way to manage this essential aspect of your business.

The importance of proper cash flow management

Many small businesses operate on very slim profit margins. If a small business doesn’t generate enough revenue to cover its expenses, it will fall into a deficit and begin to lose money.

The most frequent reason that small businesses fail is cash flow management issues, with 82% of failed small businesses citing cash flow problems as a primary factor.

Managing your cash flow is essential, not only for profitability but for long-term survival. If your small business doesn’t have the cash to cover expenses, it will ultimately be forced to shut down. Then, not only will you be out of business, but you may need to liquidate inventory, equipment and other assets at a fraction of their original value.

It is also important to make the right decisions regarding spending and generating revenue. It’s not always easy to know which expenses are critical and which can be cut back or eliminated. It can be even more difficult to know when to invest in a new sales opportunity, especially when your resources are limited.

However, by implementing a few cash flow best practices, you can keep your business healthy and profitable.

Every small business owner needs to have a good handle of their cash flow to ensure they can cover their expenses and remain profitable. These five cash flow management best practices will help you manage this important aspect of your business:

Send invoices promptly and collect outstanding debts. Small businesses that work on an invoicing system rather than a direct payment model should be especially attentive about sending invoices immediately after services have been rendered. Paying your bills and being paid for your services on time is critical for keeping your cash flow steady, and it reduces the possibility of receiving unexpected charges.

Conduct weekly cash forecasts. to ensure that your cash flow is being properly managed. A cash forecast is a financial projection that indicates how much cash will be coming in and going out throughout a specific timeframe. This will help you better understand where your money is going and make more informed decisions about how to invest your resources.

Reduce your variable costs where possible. Many small businesses make the mistake of investing in non-essential expenses when they’re cash-flow positive. When cash flows freely, it’s natural to want to spend money to grow your business further. However, the best way to ensure that your cash flow remains steady is to reduce your variable costs where possible. Consider focusing on reducing the costs that can be cut back or eliminated entirely without having a significant impact on your business’s core operations to optimize your cash flow and help your business operate as efficiently as possible.

Lease equipment. It can be tempting to invest in whatever machinery, equipment, and other large purchases seem necessary to meet growing demand. However, this can quickly become a cash flow drain if you aren’t careful.

Instead, consider leasing expensive machinery, equipment and vehicles to eliminate paying the high purchase price, but benefiting from having the equipment when needed.

Develop multiple sales channels. By developing multiple sales channels, you increase your chances of increasing the amount of revenue that you generate and ensure you have a reliable backup plan if one of your primary sales channels begins to slow down.

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