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How to Manage Your Cash Flow (and Avoid Going out of Business)

By April 8, 2016September 21st, 2022No Comments

Business growth is a pretty incredible thing to watch. As your revenue climbs and your expenses shrink, you start to feel the momentum of a solid business.

But there is one thing that can trump growing sales in a business.

The culprit is called: Cash.

You probably already know this, but at the end of the day, if you do not have the cash to pay payroll and business expenses, the growing revenue line won’t help keep your business alive.

Cash flow is one of the most critical components to a small business and can be the determining factor as to whether or not your business will be intact next year.

Without cash, profits turn out to be meaningless.

So what do you do to avoid going out of business? Time to get serious about cash flow management.

Here are 5 ways you can get a better handle on the cash coming in and out of your business.

Step 1: Reconcile Your Books, Every Morning

Imagine if you woke up, and the first thing you did for 10 minutes was checked your Kashoo Banking page to find out exactly how much money was coming in and out of your account, every single day.

Do you think you would have a better handle on your cash if you reconciled your books every morning? We think so!

Start off your morning, with a cup of Joe, reconciling transactions that occurred from the day before. You can start to see what is coming in and out of your account. This will relieve you from the daily stresses of not having a clue whether or not you can pay next month’s payroll.

No thank you.

Fortunately, reconciling transactions is super easy in Kashoo’s software. You might even find some fun to it. To learn more about Banking and our Dashboard, check out Kashoo’s 14-Day Free Trial here.

Step 2: Review Your Accounts Receivable Weekly

Accounts receivable can quickly become your Achilles Heel if you are not careful. 

If you need a refresh on what accounts receivable stands for, it’s the total balance of money owed to you by your customers. Let’s say you made a sale today for $5,000, but your customer only paid you $500 for it, then you have an outstanding accounts receivable balance of $4,500.

Accounts receivable is considered an asset, but again, without keeping a close eye on it, it can seriously bring down your business.

More specifically, if you start reviewing your accounts receivable, or AR balance, each week, you will know how long it has been for outstanding payment due from your customers and whether or not you need to follow up with them for payment.

Some businesses just assume the customer will pay. Then 90 days later, they try and contact their customer and get a wrong number or an erorred out email address. Don’t let this happen for your business.

If you generate revenue, make sure you stay on top of collecting the cash associated with that revenue.

Step 3: Review Large Credit Card Balances/Credit Lines

Debt is great, when it’s used as an investment and you have a good handle on how it’s profiting and growing your business. But as with the accounts receivable outstanding balance, you need to be careful with interest accruing on your debt balances.

If you have a line of credit, and you are constantly paying expenses with that credit, remember that interest is a partner in this deal and it gets its cut.  

Don’t let your debts get out of hand.

Stay on top of reviewing your credit card balances and line of credit withdrawals, whether it’s weekly or monthly. This is another quick way to avoid the shock of bankruptcy.

Step 4: Save For A Rainy Day & Set Aside For Taxes

Do you have a business with uneven cash flow?

For example, are you a retailer that makes the most of your sales in December, but are completely dry in July?

If so, you need to start saving and stashing your cash away, to keep your business up and running throughout the dry seasons.

A great way to stay on top of the peaks and troughs of business, is to create cash flow projections. You need to pull prior year’s Profit and Loss reports, available through Kashoo to get a handle on where the dry seasons occurs throughout each year.

Then, determine how you can save your cash when things are flowing, and how to properly portion out the cash when revenue is tighter than usual.

You also can’t forget about taxes. Make sure you’re setting aside amounts each month so you don’t get hit with a major tax bill at the end of the year!

Step 5: Spend Next Month’s Expenses on Last Month’s Income

This is a concept, pulled from most personal finance budgeting recommendations that can easily be applied to your small business.

Ask yourself, how much income did you make last month? Of that income, how much did you generate in cash?

If you have an answer to how much you generated in cash last month, then that is the balance you need to spend for next month’s expenses. And that’s it.

Let’s break this down further.

Let’s say you generated $15,000 in profit last month and collected $8,000 in cash. You should be expecting or planning to have up to $8,000 in expenses total for next month. If it happens to be more, you need to create a plan on how you can generate more income and more cash to pay off your upcoming expenses.

This process keeps you one step ahead, instead of slowly bleeding cash that you don’t have in the first place.

Recap The Process

Getting a better handle on where your business’ finances are, is essential to keeping your business afloat. If you want to avoid going out of business, here is the recap of the 5 step process to take, to manage your business’ cash flow:

Step 1: Reconcile Your Books, Every Morning

Step 2: Review Your Accounts Receivable Weekly

Step 3: Review Large Credit Card Balances/Credit Lines

Step 4: Save For A Rainy Day & Set Aside For Taxes

Step 5: Spend Next Month’s Expenses on Last Month’s Income

If you want to check out Kashoo’s dashboard to showcase how you can get a better handle on your company’s finances, head to Kashoo and sign up for a 14-Day Free Trial.

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