Small businesses can often struggle to maintain consistent cash flow, especially after just starting out. The reasons can vary, but common mistakes include placing other goals ahead of cash flow, and failing to establish an adequate business plan from the outset.
Here are several considerations to correctly sort out cash flow, and ensure it never becomes an issue in the day-to-day running of a business.
Understand your expenses
Before discounting to attract new customers, it’s vital to understand the impact it may have on the business. As such, knowing whether a discount is causing the company to operate at a loss or break even is essential. Shortly after starting a company, it’s often a good idea to avoid discounting, so expenses can be managed more effectively.
Set targets
Targets are invaluable in any area of business, but especially so for properly managing and cultivating cash flow. Preparing and maintaining a cash flow forecast is often a good idea here, and businesses should aim to keep this updated weekly.
A forecast can tell business owners whether enough cash is available to available to expand, and when more cash is leaving the business than coming in.
Establish a plan
Having a clear plan in place can ensure that businesses are constantly on target over a predetermined period. By consulting the plan, a business can see whether targets are being met on a monthly or quarterly basis, and make any necessary changes. Often, clear-cut plans are enough to see whether the business is going off-course.
Know what you have
Spending beyond the means of the business is never a good idea, and often leads to financial trouble if left unchecked for too long. That’s why it’s vital to ensure sales have come through and the funds are in the bank before purchases are made.
Understanding cash flow should become a priority for owners of small businesses, especially given the impacts bad management can have.