In order to make a profit, there are key areas to manage the cash flow in small business so you will avoid business failure – and the key areas to watch are given here. This requires a good understanding and keeping a close eye on what drives the cash flow – both coming in AND going out!
The key areas of good cash flow management to watch are:
- Profitable income and increasing income
- Pricing for profit – if you’re able to increase prices, do it!
- Timely collection from customers – don’t be a bank for them – keep them paying – they owe you!
- Stock management – enough to sell but not too much to waste working capital
- Good job management – finishing timely and with the best quality possible
- Continual management and minimisation of costs and business overheads
- 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 software or a spread-sheet that plots out what your expected income will be (WHEN paid, ie taking into consideration the time customers are likely to take to pay) and what the expected outgoings (actually paid) will be. As well as income it includes any other funds coming into the business, such as asset sales, 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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