If you are a business owner, you might find that managing your cash flow is sometimes a challenge. However, effective management of your cash flow is imperative to your business success. When you are trying to keep your business in operation without properly managing the cash flow, it is like saving a sinking ship. Even if you have success, you will constantly feel worn out.
Regardless of how long your business has been in operation, or what kind of business you run, maintaining proper cash flow is imperative for your overall success. If you have a new business startup, you will find that if you cannot properly manage cash flow during that first year of operation, you will most likely not be able to keep your business afloat another year.
The Key Elements of Analyzing Business Cash Flow
There are three main elements for analyzing your cash flow. All three must effectively be managed if you want to ensure the success of your business. When you manage your cash flow so it can reach toward the profit level, you will have a business that is more efficient and healthier. The three key elements are:
- Accounts receivable
- Accounts payable
There are several things that can help you manage your business’s cash flow:
- You should determine the break-even point for your business so you can work from that point.
- Don’t focus on the profits, but on managing cash flow with the break-even point serving as a benchmark.
- Maintain some cash in your reserves because there will be shortfalls along the way. Your business will be dependent on how you maneuver your way through the shortfalls.
- Keep a cash flow worksheet going so you can keep track.
- You should collect any receivables as soon as you possibly can. Set your 30-day and 60-day net due to contracts to a minimum. If necessary, choose a reliable employee to handle the task of watching receivables and contacting past-due customers.
- You should offer discounts to your customers if they pay early. Always keep your credit requirements strict. Be sure you have a well-written set of standards that can be used for determining credit eligibility.
- On the other hand, extend your payables just so long as the suppliers will permit – preferably to 60-day or 90-day terms. You don’t want to pay late fees, so pay on time.
- Choose an employee to monitor your business cash flow. You want that individual to notify you when your accounts reach a specific threshold, such as $1,000 or $5,000.
- You want to use technology to your business advantage. You can keep your cash flow spreadsheets in One Drive, which will allow for easy access from anywhere. Always use professional accounting software to ensure everything is right.
- Use creativity to boost your sales. Have customer appreciation events, host contests, offer incentives for referrals, and send out workers to publicize your business.
Make Sure Your Business Finances Stay on Track
If you would like to help make sure your business finances are in order and that your cash flow is properly managed, consult with MKS&H CPAs and Business Consultants. With two locations to serve you, call the Hunt Valley location at (410) 296-6200 or the Frederick location at (301) 662-7913 today.