Maintaining a Good Business Cash Flow
by Danny Brown on November 20th, 2007
No matter how big or small your business, making sure you continue to have a business to run in the first place is one of the biggest tasks you’ll need to manage. Key to this success will be your ability to control your cash flow. From forecasting what your cash flow needs are going to be, to maintaining a regular stream of cash when you’re up and running, it’s arguably the area that will make or break your business.
What is Cash Flow?
Simply put, a cash flow ensures that you have money both coming into your business, and going out on time. It’s just like running your household budget, but the difference here is obviously the size of the budget.
Your business needs to have money coming in to survive, and this will come from your customers and business associates. However, a good cash flow will also mean money going out, so your accounts are kept up-to-date with suppliers and loans are paid on time. Failure to have a smooth cash flow could cause serious problems, not least the closure of your business. So you can see why it’s essential to have a constant flow of cash to ensure both sides of your business are met.
Problems to Avoid
Having a good cash flow is only the start. Once you have a system in place, like any system it needs maintenance. If you don’t keep up-to-date with what’s happening with your business’s finances, you could soon find yourself in too much trouble to get yourself out of. For example, if you receive confirmation of an order, you’re obviously going to have to pay for manpower and materials to complete the project.
However, paying for these overheads requires money up front, before completion of the order. And since you don’t get paid until the order is finished, you could soon find yourself out of pocket if you don’t have a steady cash flow to cover you until your customer pays you.
Set-Up and Maintenance of a Cash Flow System
To make sure you stay in control of your cash flow at all times, it’s important that you set up a cash flow system correctly in the first place. Additionally, making sure it’s easy to maintain on a regular basis is just as important. Thankfully, setting up a cash flow chart is as easy as knowing how to use Microsoft Excel.
By setting up two columns for your expenses – one for your incoming, one for your outgoing – you can see at a glance what the plus or minus figure is, and budget accordingly. If you’re not too sure about doing this yourself, you can buy accounting software that will do everything for you (read more about selecting accounting software ). If this is still out of your knowledge range, then look at hiring an accountant to run the financial side of your business for you (read more about finding an accountant ).
Maintaining your cash flow is just as simple, and all it requires is for you to keep the information up-to-date. Set aside a time of the week to input all your expenses and incomings for that timescale, and you won’t run the risk of forgetting simple amounts. With this system in place, you’ll be able to forecast your whole business year ahead, and plan accordingly
