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Why Cash Flow is So Important
They say cash is king—and it really is when it comes to keeping a business alive and prosperous. Any accounting software can help your staff stay abreast of what’s coming in as far as cash and what’s going out, but how you manage that cash can make or break your business.
Working capital may be something investors or lenders want a look at, however, cash is indeed what keeps a business running. Without it, you’ll simply be struggling to pay bills and robbing Peter to pay Paul.
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Tools to Help
Cash Flow Comparisons - Remember when you first became a business owner? You most likely prepared cash flow forecasting charts or projections for loan or investor purposes. Once you got the loan or investor did you continue to compare projections to actual to see if your guesstimates were correct? If not, use some cash flow forecasting and do an analysis on where you money is going. Seeing figures in black and white often helps you find ways to cut expenses. Learn how to forecast cash flow right here on Bright Hub.
Accounting Best Practices – How well do you manage your accounts receivables? Do you send out monthly statements and just hope you get paid? Do you charge late fees or interest on past due payments? If you’re complacent in this area, learn some A/R best practices to ensure you get paid on time. If money isn’t coming in, you’ll find yourself behind. Even if your business is seasonal, you can still learn some valuable cash flow management tools.
Use Software – Whether it’s Quickbooks or some other accounting software, most programs offer up tools and reports you can utilize to analyze and compare months, quarters and even years. Make the most of your accounting software and if you need to either learn the program or hire someone who is an expert at using the program—do so.
Cut Expenses – Are you the business owner that buys everything a vendor puts in front of you? Take a look at your leaseholds, warranties on equipment, and all the advertising programs you’ve signed up for. Do you really need all of these things? Believe it or not, many business owners have two vendors supplying the same thing—not a sound business practice and a fast way to lose needed cash. You should also look at all of your expenses each month to see where cuts can be made—this is an essential cash flow management tool.
Inventory – A good business owner will knows poor inventory control can bankrupt a business. Old or inventory that may never sell is costing you money. Learn ways to take control of your inventory by using a JIT process and build relationships with vendors.
Ask for Help – Many business owners may have the grandest idea with customers abound but lack experience when it comes to running and managing a business. Find local economic development groups, or visit the Small Business Association or SCORE to help you better understand the ins and outs of running a business. Selling a product and hoping for the best is not all that’s involved and obtaining expert help does not mean you are a bad business owner, it means you want to be the best business owner.
Using these top cash flow management tools will ensure you stay ahead of the game and gain control of your cash. If you don’t know where your cash is, or think keeping an “idea” of where the business is in your head is the best approach, your business may fail.
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SBA – Running a Small Business - http://www.sba.gov/category/navigation-structure/starting-managing-business/managing-business/running-business
DNB - http://smallbusiness.dnb.com/company-activities-management/financial-performance/7310939-1.html
The author has been a business owner for over 16 years.
Cash Control - FreeDigitalPhotos/chisroll
No Cash - Flickr/Howard Lake