If and when you manage to make a profit in your business, part of good Business Finance 101 means now you have to follow it up with good cash flow management. This requires a good understanding and keeping a close eye on what drives the cash flow – both in AND out!
The key components of good cash flow management are:
- Profitable income and increasing;
- Continual management and minimisation of costs and business overheads;
- Pricing for profit – if you’re able to increase prices, DO IT!;
- Timely collection from customers – don’t be a bank for them;
- Stock management – enough to sell but not too much to waste working capital;
- Good job management – finishing timely and with the best quality possible;
- Utilising all credit terms from suppliers and increasing where possible.
The very best way to handle cash flow management is to have a ‘Cash Flow Projection’. This is a spread-sheet that plots out what your expected income will be (taking into consideration the time customers are likely to take to pay) and what the expected outgoings will be. As well as income it includes any other funds coming into the business, such as loans, tax refunds etc. Outgoings will include items such as loan repayments, tax, dividends etc. These are just as important to take into account as their timing can have a big impact on cash flow.
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