Small Business Tips To Have A Positive Cash Flow Statement
Cash flow to business is the equivalent of blood flow to the human body; without one, the other fails. In this sense, cash coming into the business should always be more than the money going out. This is positive cash flow management, and it’s good for your business.
Here are the five excellent tips to keep your cash flow statement positive.
It’s better to start with calculating how much money you need to keep the business and your personal life running. Sit down and determine the monthly overheads and plan accordingly. Don’t forget to add the rent, salaries, daily expenses of your business. The more time you spend drilling deep down to understand the expenses, the better.
If you and your businesses are quite established, setting separate funds for emergency purposes is a smart decision. This will help you in hopping huddles that affect cash flow statements.
If you are just starting, it’s better to keep your income out of business at the very minimum, so you can infuse some extra funds to stabilize your business. Again, take your time to determine the right minimum you will need to maintain a financially stress-free life.
As the business grows, you can choose to considerably increase your income out of business. However, it’s smart to keep it as low as possible at the beginning.
Good Invoice Practice
Invoices are essential business transaction records to keep any business up and running. It’s very crucial you stay on top of your invoice management and make sure the bills are sent out to customers right after the purchase. Defining your credit options to your clients initially also eliminates late payments and excuses.
Invoice management has never been easy before with all the tech advancements we have now. Also, most of the accounting software in the market currently comes with in-built invoice capabilities. Also, make sure you send out regular reminders to unpaid customer bills a couple of days earlier to the date they are due. Good invoice practices are directly proportional to positive cash flow statements.
Understanding Cash Flow Pattern
Businesses tend to have their own business and cash flow patterns. Studying them closely gives you a detailed understanding of your cash flow statements. But to understand your cash flow pattern, you must master the art of calculating your returns for stocks. Calculating the return for your inventory is the first step in understanding your small business cash flow management.
After understanding your small business cash flow patterns, you can make crucial cash management decisions like how much money to hold and how much to infuse back into the business. Also, forecasting your revenue and expenses becomes comfortable with a clear knowledge about the cash flow.
Maintaining the Balance
Small businesses’ time to stabilize is the most crucial period you have to maintain a positive cash flow. The account receivable should match the accounts payables, and more importantly, your receivable payments should arrive before your payment due dates.
If you have to pay your suppliers before you receive your customers’ payments, the gap created here could hurt your cash flow statements. So it’s better to align your payables and receivables as identical as possible, and a good accounting software can help you do it.
Keep this in mind, if you have to pay fines to your suppliers for late payments, it’s better to charge your customers for missing out on the payment dates. Late payment charges bring your payments on time in most cases. Even if you are subjected to pay a fine to your supplier because of a late payment you received from your customer, the fee doesn’t hurt your pocket.
Making the Outflow Thin
Being a small business, you have to be very careful with your expenditures. Regular expenses like stock purchase are acceptable, but any expense that can be minimized or skipped can be better. Don’t hesitate to spend some money on maintenance as this will help you prevent spending massive money on replacing the equipment. Repair and maintenance of the equipment are always better than replacing.
Carefully assess the market and go with cheaper and better equipment than breaking your bank for the most expensive option. But this is a gamble, and it doesn’t mean you should choose low-quality equipment. There could be situations where you might constantly spend on repair and maintenance, which will eventually sum up to the actual cost of the best quality equipment. So it entirely depends on how you want to do it and your capital. But make sure it doesn’t affect your cash flow statements.