Cash flow is an integral part of running a small business. You have to make sure that you have enough money to pay your bills and keep the lights on. If you need more cash coming in, you may need help to make ends meet or even close up shop.
If you’re having trouble managing your money, there are several things you can do to improve your cash flow situation. This article discusses seven in particular.
1. Consider a line of credit
If you have a good credit rating, consider applying for a line of credit, which you can use to cover emergencies or other unexpected expenses. A line of credit can also give you more flexibility regarding how much money you borrow and when. This is especially helpful if your business has irregular income streams or sales spikes during certain seasons or months.
Credit options may include credit cards, personal loans from family and friends, or business loans from financial institutions. Click here to learn more about how to apply for a business loan.
2. Set up a business bank account
Opening a separate bank account for your business is crucial. It will allow you to separate personal expenses from business expenses and make managing your finances more manageable. If something comes up with your checking account that interferes with your ability to pay bills on time, it won’t affect your company’s operations.
You can do this by opening an account at a local bank or credit union, where you can manage deposits and withdrawals online or through mobile banking apps. Some credit unions also offer free online bill payment services that allow you to pay all your bills directly from the same place you handle other financial tasks. This can help you separate personal finances from the company at large.
3. Automate bill payments
If you have bills that come every month, you can set up automatic payments, so they are paid automatically on the same day each month. As a result, every bill is remembered and paid.
The same goes for credit card payments; set up an automatic payment with your bank. Doing so means it gets paid off at least once per month, so you don’t have to worry about remembering to make the payments.
4. Keep track of all expenses
Small business owners must keep track of their expenses to see what’s happening with their finances at any given time. Knowing how much money you need to cover all your costs at once will be challenging if you’re not keeping track of all your expenses.
You can track your business expenses using a spreadsheet or an accounting software program. These programs will allow you to input your costs into specific categories to be tracked easily and quickly.
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5. Monitor your accounts receivable
It’s essential to monitor your accounts receivable because this tells you how much money you’re owed by customers who have purchased goods or services from your company. Accurate records allow you to assess when bills are due and how much money will come in from customers during any given period. This information helps with proper budgeting and planning so that you know when cash is needed most urgently and can plan accordingly.
You can check your monthly sales figures, which should be automatically updated in most accounting software programs. Using an Excel spreadsheet, you can manually enter new sales figures into the appropriate column each time you make a sale. This tells you what cash flow management techniques are best used during this time.
6. Be conservative with spending
Spending all of your available cash on new equipment or marketing efforts can be tempting, but it’s better to save some money in case unexpected expenses arise. This is also applicable if your company suddenly picks up again.
One way to do this is by setting budgets for specific business areas or outsourcing a financial adviser. This will help you decide how much money you can spend on new technology or marketing efforts without risking going into debt or running out of funds before the end of the month or quarter.
7. Save receipts
Many small business owners must collect receipts from customers or keep track of them once they’re paid out. This can be problematic if the Internal Revenue Service or another agency audits you because they want proof that you collected sales tax from customers on certain transactions.
To avoid this issue, keep all receipts for at least three years after filing your tax return for a specific year. You’ll also need receipts for purchases made with certain credit cards or debit cards if you plan on claiming them as deductions on your taxes. Otherwise, you can be penalized for failing to report them properly.
Managing your cash flow is one of the most important aspects of running a successful small business. However, cash flow planning and management can be challenging. As a result of poor cash flow forecasting, you may need help with unexpected expenses or more money to pay your bills on time. But by keeping these six best practices in mind, you can balance your cash flow and keep it smooth.