If you’re a small business – whether you’re just starting out or have been operating for a while – it’s essential to understand that good money management is integral to the overall success of your business. You might be thinking, “Hmmm, I’ve always been good with money.” That’s great. But managing your personal finances is far different from managing the money that goes in and out of your business.

Specifically, managing your cash flow is something you should be sure you know how to do. Having ample cash-on-hand is essential to dealing with customers, vendors, and others, and if you’re coming up short on cash, you need to seek some guidance on how to address this dilemma. You’ll want to determine whether there’s an issue with your business in general (are you generating enough income?) or if you need to change the way you manage your money.

Step one: Cash flow projections

Creating a cash flow projection doesn’t need to be overly difficult. As a matter of fact, such a projection is merely the breakdown of expected receivables versus the payables for which you are responsible. The projection will provide a good luck at a business’s financial situation and will allow you to make informed decisions about spending and how to allocate resources.

These projections are generally done for a specific period of time, often one month. That means the business owner can look at the cash on hand at the beginning of the month (say $20,000), calculate expected income for the month (say $30,000), review expenses for the month (say $25,000), and come up with the ending cash balance (in this case, $20K + $30K – $25K = $25K) Hence, $25,000 is the cash flow projection.

This final number should be able to help a business owner recognize whether things are going well or need to change.

Improving cash flow

Obviously, if cash flow is precarious, there are two things you can do to change that predicament: improve receivables or better manage payables.

Small businesses don’t often get paid immediately, which can really back things up. But there are things that can be done that prompt customers to pay in a timelier manner. These include:

  • Offering enticing discounts for customers who pay quickly
  • Promptly issuing invoices and following up with the customer when payment is slow
  • Offering more than one way for your customer to pay (PayPal, other secure portals, credit cards, etc.)
  • Regularly tracking your accounts receivable (or having an employee who does this) so as to identify non-payers or those who take a long time to pay

Just as receivables must be closely watched, so must payables. If expenses are growing faster than sales, you’ve got a problem. Even a company that’s growing fast could experience problems if payables aren’t managed correctly. Here are a few tips for better success with managing your payables.

  • Be well aware of your suppliers’ terms and pricing and don’t be afraid to renegotiate or make a switch if necessary
  • Know your selling and billing cycles and keep track of sales and expenditure patterns
  • Manage and track your inventory levels, either personally or via an employee who is responsible for this
  • To retain the use of your funds as long as possible, pay bills on the last day they are due (but certainly not late!)

Staying on top of cash flow

Perhaps you’ve recognized that accounting just isn’t your thing or maybe you’ve had issues “keeping the books”. You’re not alone. For many business owners, keeping track of the money isn’t their strong point. So that’s when it’s time to ask for help! Good cash flow management is ultra-important to the success of any business – large or small – so if the bookkeeping part is dragging you down, hire someone to help.

At Soleimani Accounting, we’re eager to help keep you on track. We can offer as little or as much assistance as you need, from completing cash flow projections to doing payroll to assisting with budget preparation. We’ll even help you set up an accounting system and train you or your team how to use it. For more information about our services, chat with one of our team members by calling 604-781-2412.