Cash flow is one of the biggest concerns that small business owners have. In fact, a recent study found that 82% of businesses failed due to cash flow problems.
With commerce reaching unprecedented lows, the problem is ongoing. Small businesses need to be on their toes to make sure they don’t get into cash-flow issues during turbulent times.
Not sure how to prevent this from happening with your business? Check out our quick guide on how to make sure your small business doesn’t get into cash flow problems.
Know Your Numbers
It’s important to keep track of your company’s financials and know your numbers to avoid cash flow problems. By understanding your business’s spending, income, and profitability, you can make sound financial decisions and avoid any potential issues.
Have a clear idea of where your money is coming from and where it is going. This will help you divide your resources and identify any areas where you may be bleeding money. Check this spend management strategy to help you with your cash flow management.
Good record-keeping is the key to maintaining a healthy cash flow and keeping your small business afloat. Having a clear picture of your business finances can help you get financing and investment.
Maintain a Healthy Ratio of Debt to Equity
Too much debt can lead to financial problems if your business is unable to generate enough revenue to cover its expenses. On the other hand, too much equity can also be problematic. This can lead to diluted ownership and control of your business.
The ideal ratio of debt to equity will depend on your industry and the specific circumstances of your business. As a general rule, it is important to keep your debt level manageable. Maintain a strong equity position to protect your business from cash flow problems.
Stay on Top of Your Accounts Receivable
Accounts Receivable is the money that’s owed to you by your customers for goods or services you’ve provided. To keep track of this, create invoices as soon as possible after completing a transaction.
To make sure you receive payment on time, consider offering discounts for early payment. And follow up with customers who are late in paying.
When customers don’t pay their invoices, it can put a real strain on your cash flow. This can lead to bounced checks, late payments to vendors, and other problems. By staying on top of your accounts receivable, you keep your business running.
Create a Cash Flow Forecast
A cash flow forecast is a critical tool for all small businesses. It includes all your revenue and expenses and is done on a monthly or quarterly basis. By forecasting your cash flow, you can prevent cash flow problems before they happen.
To create a cash flow forecast, gather information on your past cash flow. This includes your expected revenue and expenses for the coming months. With this information in hand, you can create a detailed projection of your company’s future cash flow.
Put an End to Cash Flow Problems
If you want to avoid cash flow problems in your small business, there are a few things you can do. Make sure you keep track of your expenses and have a good system for invoicing and collecting payments. It’s also important to have a buffer of cash in case you need it.
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Alison Lurie is a farmer of words in the field of creativity. She is an experienced independent content writer with a demonstrated history of working in the writing and editing industry. She is a multi-niche content chef who loves cooking new things.