- 6 Ways New Businesses Can Maintain Healthy Cash Flow - October 6, 2016
Maintaining a workable cash flow (the capital going into and out of your business on a regular basis) is one of the most important concerns of any business, regardless of age or size. Poor cash flow management can easily put a business under. Conversely, good management might be able to keep a business afloat, even during rough or tumultuous times.
While maintaining solid cash flow is an ongoing struggle, there are a few things you can do early in the life of your small business to keep your finances in order and stop little problems from becoming big ones down the line.
6 things all startups should do to maintain cash flow
- Keep business and personal finances separate
Keeping track of the money going in to and out of your business is impossible if all the capital is mixed in with personal profits and expenses. If you haven’t already, get a separate business checking account so you can more accurately keep track of your business (and personal) finances.
- Maintain bookkeeping records
Starting up a business is a lot of work. Of all the tasks an entrepreneur has to deal with, bookkeeping might be the least sexy. Nonetheless, keeping thorough records of your finances is important to keep your business running well.
Keep accurate bookkeeping records, and you’ll be able to see where your money is coming from and going to. By thoroughly examining all your profits and expenses, you might be able to find ways to improve profits or minimize expenses. For example, you might discover that you’re paying for services you no longer use, or find you can save costs by purchasing certain items in bulk.
- Organize and collect invoices
Keeping track of invoices, and following up with customers who haven’t paid yet, can be just as important as maintaining solid bookkeeping records. Merchants who don’t keep track of invoices risk losing money simply by forgetting about the debt.
Some customers are also prone to paying invoices late, either because they forgot about the debt or because they simply neglected to allocate the time to pay their bills.
Merchants employ many tactics to avoid these errors. The most common tactic is to send out reminder messages to customers who have not yet paid. Some business owners also conduct credit checks on new customers or refuse credit to those who have a history of bad payments.
- Pay debts on time
Paying your own debts, such as invoices and credit cards, is just as important as ensuring other people pay theirs. Some businesses offer discounts for merchants who pay debts early; others charge fees for those who pay late. Chances are, you can save money by paying on time or early.
- Raise prices or cut products
Businesses need to be profitable to survive. Obviously, most new businesses have to operate at a loss until they get their feet on the ground, but at some point your business has to be making more money than it’s losing.
If your business is barely getting by, you’ll need to find ways to cut expenses or increase profits. Many businesses do this by raising prices on certain products, or cutting items that simply cost too much to produce.
- Consider outside financing
Despite doing all of the above, you might find that your business is still running into cash flow problems. It’s possible you may just be experiencing a temporary downturn, or that past-due debts are catching up with you. Whatever the cause, there are many financing products available with the potential to help your business.
If your customers are taking too long to pay their invoices, invoice financing can help you get the money you need while you wait for your customer to pay.
On the other hand, if your business is experiencing a temporary downturn, perhaps because you depend on seasonal sales, a working capital loan might be for you. Finally, if you have outstanding debts from old loans, credit cards, or other places, refinancing all those debts might help you consolidate a lot of your expenses.
Final thoughts on cash flow
Managing cash flow requires you to perform a constant balancing act with your income and expenses. The earlier you get started understanding the intricacies of your own business’s cash flow, the better you’ll be able to run your business.