TRAVERSE CITY — You may have experienced the nightmare of your vehicle breaking down at the worst possible time because you failed to do routine maintenance or ignored dashboard warning lights.
Small business owners can fall victim to a similar break down because they haven’t focused enough attention on their cash flow. Without diligent cash flow management, businesses may find they don’t have money to pay their bills. In fact, insufficient cash flow, especially for seasonal businesses, is one of the primary reasons that businesses fail.
That’s why good cash flow management is one of the cardinal rules of small business ownership. Watch your business “dashboard” closely to ensure more cash enters your business than goes out. Make sure there’s always enough cash on hand for fixed expenses, including payroll and taxes.
Several strategies are available to influence both sides of the cash flow equation. To boost cash inflows, be diligent about managing your accounts receivables. If you’re a service provider, consider asking customers for all or a substantial portion of their payment up front or give discounts to those who pay promptly. Accepting credit cards can be a great way to bring in cash immediately even with the associated merchant processing fees.
As for cash outflows, an operating budget is an ideal way to plan and track specific dates for recurring expenses. Avoid overspending on budgeted categories unless absolutely necessary. That way, you’re never surprised when a bill arrives.
Other tactics for keeping cash in the business include maintaining low inventories, leasing certain kinds of equipment instead of buying it outright, recycling and reusing supplies where possible, and evaluating your processes and procedures to make sure they’re as efficient and cost-effective as possible.
Perhaps the most important cash management tools are awareness and planning. Regularly monitor your sources and uses of cash to spot trends that allow you to capitalize on opportunities and avoid problems. Identifying patterns will also help you better project revenues and expenses in the future.
With this forecasting information, you’ll know when inflows and outflows are more likely to go out of balance so you can prepare accordingly.
Cash flow is just one of the many critical financial issues small business owners must focus on to achieve success. For help with starting or effectively managing your small business, contact Traverse City SCORE at 888-796-4913 or visit www.UpNorthScore.com to schedule a free and confidential appointment with an experienced SCORE mentor.
Bruce Finlayson, a volunteer mentor and Vice Chairman of SCORE, is a former business executive with extensive experience in business operations.