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How to manage cash flow problems

Introduction

In many small businesses, cash flow can be quite a problem.The problem is not just as simple as more cash flowing out than cash flowing in.If that is happening consistently, you have other, bigger problems that you need to manage.The type of cash flow problem that this article will help you manage is a discrepancy in timing.We assume that overall, you are making money, however, if the cash coming in is not available when you need cash to go out, you have a cash flow problem that is manageable.

Instructions

Difficulty:medium


Steps

Step 1:Understand your cash flow.The first step in managing cash flow is to understand your cash cycle.All businesses have cash coming in and cash going out during any given period.You need to look at the patterns involved in your cash flow cycle.Determine when you have money and when you need money.It is almost inevitable that there will be times of negative cash flow.Recognize these periods.For example, if you are in manufacturing and you have a "busy season", you will need to procure the raw materials in advance of the busy season.This makes for a period of negative cash flow prior to the busy time.The positive cash flow period comes during the busy season when you are reaping the benefits of higher sales.Get a calendar and try to mark times of the year that you are negatively and positively cash flowing.

Step 2:Develop a plan.Once you understand your cash flow cycle, you can develop a plan to help you manage your cash flow.Figure out what to do with the money when you have it, so that you can ensure that there is plenty left when you need it.You might transfer most funds from times of positive cash flow into investment accounts.You might also start a savings account or a money market account to transfer money back into the business operating account when you need it.Use electric deposits and electronic transfers to speed all processes.When it comes to cash flow management, time really is money.

Step 3:Increase the positive and decrease the negative.Cash flow problems become easier to manage when you have more cash to work with.You should constantly be trying to increase the money coming in while reducing the money going out.One of the ways to do this is to carefully monitoring spending during periods of positive cash flow.During times of negative cash flow, most business managers are careful with money and consider each purchase cautiously.Try to maintain this type of diligence year round.What usually happens is that people get "fat and happy" when the cash flow is positive and start spending with out thinking.You should be just as careful with money at all times.

Step 4:Stay on top of accounts receivable.You might have developed an awesome plan, reduced all expenses to the minimum, and still end up having cash flow problems due to customers who have bought on credit not paying.Be careful extending credit and consider what it is going to do to your cash flow management if you don't get payments on time or (worse) don't get payments at all.Having people owe you money is not as good as having money in the bank and it shouldn't be considered income until the money is safely in the coiffeurs of your company.Sometimes late payments are the fault of your company.Make sure that invoices always go out plenty early.You might consider weekly invoicing rather than monthly invoicing to keep cash flowing.

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