3 tips for effectively managing your small business’s cash flow

Sometimes running a business feels like being the captain of a ship; your main responsibility becomes keeping the ship afloat and steering it toward success. However, like any sea ride, there might be rough waves, navigational challenges and obstacles like sandbars and debris. These can easily throw you off course and cause the ship to sink, just like issues like poor cash flow management can lead businesses to fail. 

According to Fundera, a U.S. Bank study revealed that cash flow issues are a major reason why 82% of businesses fail. This is because businesses need money to operate, and improper money management can lead to financial crises and the loss of growth opportunities.

Get ready to take control of your business' success with these cash flow management tips.

Understand basic accounting

Accounting is keeping track of the money coming in and out of an organization. Mastering this is the first step to properly managing cash flow in your business. It will help you save money you would otherwise use to hire an accountant. All you need to know is the basics of accounting, and with that knowledge, you can seamlessly categorize transactions, manage accounts receivable and payable, maintain accurate financial records and generate financial reports.

Send out invoices promptly

It's not uncommon to want to be paid as soon as possible after providing your products and services. The only way for that to happen is by sending out invoices promptly. Without the delay, the customers' responsibility to pay you is still fresh in their minds, and you too are more likely to stay on top of purchases. This will also give you an opportunity to send reminders if your customer's payment is delayed. And if it's a case where your customer refuses to pay, it'll be easier to hold them accountable.

Have an emergency fund

What do you do when your business has inconsistent incomes, all while having consistent expenses? It's simple: you rely on your emergency fund — but only if you have one in place. It's undoubtedly a smart choice, especially if you care about keeping your business open. An emergency fund is necessary even if your business maintains a stable income. There are societal issues, such as inflation, recession, pandemics and wars, that can create drastic shifts in your business in a split second. Additionally, when it comes to emergency funds, the question is normally: How much is enough? It's a tricky question to answer, especially since all businesses and their emergencies vary. However, Bench shares that most business advisors think setting aside at least three to six months' worth of expenses is substantial.

Contact the Law Offices of Donald W. Hudspeth, P.C., for guidance on making healthy choices with the finances of your small business.

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