Maintaining a positive cash flow is the lifeblood of any successful business. Without a steady stream of cash coming in, debt can build up fast, you can fall behind on tax obligations and your business is at risk of becoming one of the many small entities that fail in their first year.
Even if your business is relatively stable, an interruption in cash flow will prevent you from growing and achieving the success you dream of. Thankfully, managing cash flow just takes determination and foresight.
Here are some top tips on getting your cash flow into shape:
Set realistic targets
Spending the time putting together cash flow projections is like consulting your road map before a long-distance drive; while you cannot predict everything on the road ahead, at least you know exactly where you are going and how you plan to get there. Work out how much is required to cover your expenses and how much cash you need to cover any risks. Be driven, but also stay realistic about expected income. Rather have your results surpass your expectations.
Know who owes you money
Make sure you keep thorough records of outstanding debtors, including when payment from them is expected. Many debtors do not honour their payment obligations on time, which can have a negative impact on your cash flow. Instead of relying on everyone to pay on time, manage risk by building up a reserve account.
Keep thorough records of outstanding debtors
Be aware of the timelines given to debtors of when the invoices are payable to you, and how much is due to you. Then add one month to the expected period and halve the expected amount.
Don’t put all the surplus cash in your pocket every month
First, build up that reserve account that will allow you to carry at least three months’ expenses without any income. I know that’s a tall order, but no one said cash flow management was easy; plus you’ll sleep better knowing you have this safety net in place.
Keep personal expenses far away from the business
Some business owners even buy their groceries using money from the business. A business should be managed like a business, not like a household.
Separate the Receiver of Revenue’s money from your own
Open a savings account for this, under no circumstances should you keep that money in the day-to-day business account, try to transfer 35% of the surplus to this account every month.
Now that we’ve covered the actual numbers that are critical for you to know and track for your business, it’s worth also mentioning that there is often significant work to do, for most of us, when it comes to money. Our relationship with money is influenced by our upbringing, experiences and networks and these can impact the success of our business, or not. Coaching can help us to unpack and shift towards LOVING money, to having an absolute abundance mentality that attracts money in.
Revenue is vanity, profit is sanity, cash is king.
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