CASH FLOW MANAGEMENT
Cash flow management is a critical business skill that, when done correctly, can help propel your business to successfully grow and allows you to further develop your company.
Unfortunately, if your business is unable to manage its cash flow, it could be the very end of your business at all. According to a study done from the financial services company, 82% of business failures were due to poor cash flow management.
There are 5 critical cash flow management areas that need to be focused on in order to properly manage your company’s finances. Managing these points correctly can help you minimize errors and propel your business towards its goals.
Top 5 Cash Flow Management Errors:
1. Not invoicing in a timely manner
Invoicing and receiving payment must be done in a routine and timely manner. Delays in invoicing can have a disastrous effect on your cash flow. The longer in the delays in invoicing, the longer it will take to receive the payments. Accurate record-keeping, monitored and updated daily, will help ensure who has and hasn’t made their payments. If customers receive a bill or invoice late, they’re far more likely to pay the invoice later, or could possibly overlook their payment. Billing as quickly as a project or service is completed will help track the expected incoming cash flow, as well as track any outstanding payments yet to be received.
2. Trying to grow the business too fast
Planning and routine monitoring a growth strategy for your business is key. While the desire to quickly grow and expand your business is understandable, it’s important to be mindful of its growth so that you do not spend all your resources and overextend the company financially.
Business development and expansion are always great goals but need to be mindful of the approach. Detailed planning and securing the needed finances to grow the business should be the key points used in your desired growth plans. Careful and thoughtful planning can help manage company growth without jeopardizing the business.
3. Insufficient cash flow budgeting
Cash flow budgeting must be a major priority in your business on a daily basis. Detailed documents must be a key focus for your business — it is critical to maintain a clear picture of your actual and expected revenue and expenses. Tracking of day-to-day transactions on a budget report, and identifying patterns where there are issues, will help you quickly address any problems, get them resolved, and keep you on track with your cash flow.
4. Lack of forecasting revenue
Cash flow forecasts allow you view your current level of available funds and view estimated revenue incoming in the near future. This can give you an idea of the anticipated cash flow available that could be used for future growth.
Forecasting provides the opportunity to view estimated dates of incoming revenue, the amounts, and is a helpful tool in future planning.
When creating the forecasts, it’s important to estimate on the conservative side, use historical numbers as a starting point, and factor in known issues or timing that could affect your anticipated revenues. For example, if your business has higher volume times during the year based on seasonality of products, make sure that is reflected, and noted, in your forecast.
5. Failure in analyzing expenditures
It’s critical to review your expenses on a regular basis. Pinpointing unnecessary spending and reviewing the returns on the company expenditures is key in cash flow management.
Key expenditures include rent, salaries, wages, taxes, and debt payments. A helpful tool to measure your expenditures is by using business benchmarking technology. This tool allows you to compare your business spending against your competitors and companies of comparable size in your industry, to show how your spending looks on a broader scale.
Focusing on your cash flow management is key in managing your business, keeping it financially healthy, and can help you to plan its future growth.
Utilizing these 5 crucial steps, and maintaining a cash flow management focus, will enable your business a much better opportunity for success. When a constant focus on the cash flow is maintained and understood, it can take away the concerns of the unknown, and better prepares you to anticipate and act in the future with knowledge, a plan, and with confidence.
In addition to focusing on cash flow management, it’s critical to identify and maintain suitable business insurance for your company. Quotes for insurance can be obtained from a range of sources.
BizCover has access to a network of insurance companies and can quickly provide you many policy options to choose from to secure the most suitable insurance to your business. This will help your company to mitigate risks of operating business.