The number one reason businesses fail is because they don’t manage their cash flow well. Cash flow is your business’s lifeblood. Without positive cash flow, your business is like a person without enough blood, or an engine without enough fuel. And contrary to what many might think, it’s even more important than generating a profit.
The first step to managing cash flow is to appreciate its importance. Then, make sure you understand the basics of what affects it and how – so that you can effectively manage it. Finally, monitor your business’s cash flow closely.
Keeping tabs on your cash flow involves more than just looking at your business’s bank account and your profit and loss statement. There are a number of key items that you need to stay on top of. Review them thoroughly each month, and monitor them on a weekly basis as well. The main thing is to avoid being hit with a surprise when it’s too late to do much about it.
The best way to avoid heart disease is to lead a healthy lifestyle, get regular checkups, and if there are warning signs, to act on those red flags while you still can. Similarly, with your business’s lifeblood – cash flow – do everything you can to head off problems long before they become too difficult to manage.
Sometimes bad things happen despite our best intentions. If you incur a cash flow crisis, you’ll need to act quickly and decisively so that you can turn the situation around and handle your financial problems before they become overwhelming. There are a number of tactics that can help you manage a cash shortfall.
There are a number of useful tools to help you track your business’s cash flow. For small businesses, these can be quite simple. These tools can give you an overview of cash inflows and outflows, show you when receivables and payables are due and project your cash flow for up to six months.