When you have cash, it’s easy to forget about it and focus on sales or production. When it gets low, it’s all you think about.
There are small things you can do consistently to avoid the surprise of low cash balances. Here are 5 tips to help you improve your cash flow.
- Watch your budget variances: Budgets are a collection of guesses. These guesses are less and less accurate as the year goes on, but they can still provide value. Identify where your spending has increased more than your expected to see if something needs trimmed back. This is a great way to identify the small “cash leaks” that slowly drain you. Underspending may mean you’re not getting resources in place to execute your strategy or build your business.
- Manage your accounts receivable: Your cash is often sitting in your customers’ bank accounts. Send invoices quickly, make it easy for customers to pay, and follow up on late payments.
- Know the cash breakeven time for large purchases: The breakeven point is when you’ve earned enough cash to cover the expense to create that cash. Large purchases, like for equipment or big ad spends, put a big hole in your cash balances. Be conservative when estimating how long it will take to climb out of that hole and be ready with a plan B to get cash if it takes longer.
- Have at least three months of expenses in savings at all times: I spoke to a group of small business owners in January and recommended this. Little did anyone of us know what huge business disruptions we would all soon face. Life is full of surprises, both good and bad. Make sure you have a little cushion to handle both.
- Always look ahead: Nothing is worse than having to put your plans on hold while you scramble to get cash. You want time to make sure you have cash in place to execute your plan. The best tool for this is a cash flow projection.
- Rob Stephens
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