Running a business is hard work, rewarding, and never, ever dull.
Every day brings new opportunities and challenges, including some that are beyond your control like a global pandemic, supply chain crisis, and soaring inflation. How many of us saw that coming?
Those uncertainties make one business lesson crystal clear: the importance of having strong cash flow. Cash flow is defined as it sounds: the amount of cash that flows in and out of your business. A positive cash flow can help you meet expenses and plan and invest for the future of your business.
But how do you manage cash flow when times are challenging and uncertain? Well ... you can start with these steps:
- Know where your cash stands. Financial statements tell you a lot about your business. A cash flow statement, which shows the movement of money in and out of your business, can help you measure the strength and viability of your business and help you qualify for business financing. Learn more about how cash flow statements can help you.
- Use online and mobile banking. Given the importance of your cash flow, you should monitor your account activity and balances every day. Tools like online and mobile banking can help you check account balances, see what payments have cleared, monitor electronic payments, and avoid financial surprises. You can even set customized alerts to notify you about specific account activity.
- Work your accounts receivables. One of the biggest factors in boosting cash flow is managing your receivables. Consider offering discounts or incentives for your customers to pay earlier or requiring them to pay a deposit upfront with every order. You could also encourage debit and credit card and electronic payments to speed up the payment cycle.
- Build reserves. In any economy, it's critical to have cash on hand to help manage unexpected expenses and slowdowns. In an uncertain economy, it's even more important. The good news is that in economies with higher rate environments, you have the potential to earn more on your savings. Do some research and find the best savings rates.
- Project and plan. There's a reason budgeting is important: it helps ensure you can meet your obligations. Take some time to analyze your current spending and review your plans for your short- and long-term goals. Do you have enough money to cover your expenses? What happens if your revenue decreases? Are there opportunities to reduce expenses or put some of your plans on hold? Planning is your best defense.
Challenging economic cycles are tough for business owners. Fortunately, they don't last forever. Following these steps will ensure you get through those challenging times and are in a better position when things start to turn around.