Cash flow management is a fundamental step in running a successful small business. Regardless of what industry your business operates in, you’ll need cash to succeed. Without cash, you’ll face an uphill battle trying to restock inventory, advertise/promote your business, hire new employees, etc. So today we’re going to take a closer look at some essential cash flow management tips for small business owners.
Where to Acquire Cash
The first step in proper cash flow management for small businesses is to identify sources of cash. In other words, where you can acquire cash to run your small business? There are several different solutions available, including personal credit cards, family & friends, business loans, angel investors, venture capitalist firms and even crowdsourcing. Instead of focusing your efforts on a single medium, it’s best to diversify your capital acquisition across multiple platforms. Diversity creates a blanket of protection, ensuring your business has access to adequate capital at all times.
Prepare Cash Flow Projections
While there’s no way to tell what’s in store for the future of your small business, you should still prepare cash flow projections. As the name suggests, this is a projection of how much cash you intend to receive, have on hand, and use throughout a specified period. Cash flow projections typically cover a year and fiscal quarter, although some cover weeks.
Add Cash at Beginning of New Period
Now that you have a cash flow projection (or projections), you should begin adding cash to your business at the beginning of these newly specified periods. For an annual cash flow projection, for instance, you should add cash during the early days of January. Doing so gives your business a little “financial breathing room,” protecting it from hardship in the event of unforeseen expenses — and trust me, unforeseen expenses WILL occur when running a small business.
Small business owners must also make projections about upcoming cash outlays, or in other words, upcoming expenses. Don’t just guess how much you’ll spend, but use historical data from past expenses to provide an accurate representation of your future expenses. Common cash outlays for small businesses includes inventory, payroll, taxes, benefits, utilities, rent/lease, office supplies, furniture, debt, advertising, etc.
Hopefully, this will give you a better idea of how to manage your business’s cash flow. Of course, you should also use a professional accounting system, such as Intuit’s Quickbooks.