Small and Medium Enterprises (SMEs) have grown much in the last ten years due to increasing development opportunities, embracing the latest trends, and novel machinery. At the same time, an SME has to face many challenges due to access to credit instruments or monetary support.
Cash flow management is an ongoing and persistent fight that business owners must fight to avoid failure.
In their study in Jan 2014, Statistic Brain revealed that the major causes of small and medium businesses’ failure are cash-related. These cash flow crunches are caused by a lack of pricing knowledge, no planning, lack of financing knowledge, lack of bookkeeping experience, bad credit granting practices, insufficient borrowing practices, and insufficient inventory.
Acquire a Hold on Cash Flow
All of these pitfalls relate specifically to cash flow. Cash flow isn’t a difficult business topic. However, many small-business owners don’t want to deal with it because they think it’s “all about numbers.” But it isn’t. It’s about the health of your business.
You need to follow two primary ways to improve the cash flow in your business.
- Income: Increase the amount of cash coming in.
- Expenses: Decrease the amount of cash going out.
It sounds like such an easy concept. Here are some easy and amazing practices for maintaining a smooth cash flow:
Calculation of Business Risk Analysis and Planning
Always watch for unexpected serious challenges and various risk factors involved with running a successful business; all kinds of “what if” scenarios should be considered for risk analysis. These, in turn, become a part of your bookkeeping process of budgeting and maintaining a healthy cash flow.
Use a spreadsheet or bookkeeping software to enter cash inflows. Reflect a hypothetical situation by adding or deleting inflows.
Make a New Business Bank Account
The first and foremost step required for a start-up business is to have a separate bank account. Mixing your account will confuse and complicate the business budget’s bookkeeping.
Efficient Monitoring of Inventory
Manage inventory efficiently. Maintain a sufficient inventory of fast-moving items. Do not overstock. Avoid keeping stock of dead or slow-moving items. Analyze the items that are selling and those that are not. Keep the inventory levels lean so your working capital isn’t tied up unproductively and unprofitable.
Always Maintain Buffer Money
Always keep at least three months’ money saved in the bank for a rainy day to have funds to finance your business.
Control Cash Flow Best by Bookkeeping
Many business owners postpone invoicing customers and make payments at the end of the month. Keep track of your transactions on paying the supplier and money owed by the customer by bookkeeping. Either implement accounting software or use a simple spreadsheet.
Cut Expenses, Manage Cash Outflows
Control and lessen your expenses even if you are gaining profits. Keep records by bookkeeping. Control cash flow and prevent it from overflowing. The outflow of cash will destroy your business.
Grow Cash
Maintain your currency balances in accounts that earn interest. Keep cash in accounts that pay interest at a higher rate. Stay away from long-term deposit certificates because, by doing this, you will be bound for a certain period. Invest in penalty-free certificates or funds you will not need soon.
Focusing on Cash Flow, Not on Profit
Agnes Cserahti has estimated that 90% of SMEs never plan their cash flow, though they have many years’ profit forecasts. It is one of the primary reasons for failure in the early stage of business. New businesses should work with clients who are reliable and who pay quickly.
Conclusion
Small business owners who work on good cash management always have a profitable business with lower debt and loan rates. It also makes business owners flexible and allows them to avail new opportunities with sound peace of mind.
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