Operating your business without a cash flow management plan is like trying to row a boat upstream: you spend so much time trying to avoid losing ground that you never get ahead. Here are five tips to help you better manage your cash flow and keep your business moving forward:

  • Learn the basics.   Cash flow is the movement of money into and out of your business in a finite period of time. To maintain a healthy business cash flow, the amount of money coming into your business must exceed, or at least cover, the expenses going out.
  • Prepare a statement.   Preparing a cash flow statement can help you stay organized and qualify for a loan as lenders use it, among other factors, to determine whether or not you can successfully run a business. Consider getting one of the many software applications designed specifically for creating a cash flow statement. This will help ensure accuracy and consistency.
  • Make projections.   Predicting your income and expenses can help you anticipate – and prevent – cash shortages. Try organizing your payables and receivables on a spreadsheet so you can see where your money is coming and going. Then, use this information to create a cash flow projection for the next six months. Keep in mind that preparing for the worst may help ensure that you’ll have the extra cash if you need it.  
  • Monitor your burn rate.   An important calculation to stay on top of is the amount of cash you spend per month, also known as your burn rate. This can be used to help determine how long your business can continue to operate if no new revenue comes in. To get a basic understanding of your burn rate, subtract your monthly operating expenses from your liquid assets and income. Divide your total current liquid assets by your burn rate to determine when you will run out of cash.
  • Increase your collections.   With all the tasks involved with running a business, it can be hard to find time to chase down late payments. But getting in the habit of calling your customers when invoices become past due can significantly improve your cash flow. Using a scheduling or automated receivables tool can help you stay on top of your payment cycle. And once customers see how proactive you are, they’ll be more likely to move you to the top of the stack of bills they have to pay.

Effectively managing cash flow takes some practice, but once you learn the basics you can begin to take your business to the next level.

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