No matter how great your business plan is, how profitable you are, or how many investors you have, you cannot run a successful business without properly managed cash flow. Webster’s dictionary defines cash flow as a measure of an organization's liquidity that usually consists of net income after taxes plus noncash charges against income. Per Forbes.com “About 82% of startups and small businesses fail due to poor cash-flow management”. Even if you are a brilliant entrepreneur in every other way, you must manage your company’s cash flow
to keep from putting your business in danger. There are a few avoidable issues you should be knowledgeable
about to help grow your business successfully.
One of the biggest issues business owners face regarding cash flow is being passive about unpaid invoices. If you aren’t being proactive about collecting invoices from your clients, you are on your way to a dangerous situation. Most small businesses don’t have penalties or late charges in place, but they should. If you haven’t already, set clear policies with your customers for penalties and consequences when payments are late. Create an internal time line of procedures for when you’ll send the initial invoice, when payment reminders will go out and when you’ll make collections phone calls or cut off services if past invoices aren’t paid.
No matter how many precautions you have in place to protect your company’s cash, issues in cash flow are a business reality. This may be no big deal if you have a cushion of savings on hand. But if your company is working from a zero-account balance, one slow sales month could mean disaster. To protect your business from cash-flow issues, maintain an account balance equivalent to at least two months of operating expenses. That way, even if you experience unexpected stalls to cash flow, you have reserves in place to protect yourself.
One of the most important things you can do to track your cashflow is set up a budget. You can watch your bank account balance, but without tracking your day-to-day cash flow, you may still find your business in a tight spot. Using a cash-flow statement will help you track your inflow of revenue and outflow of expenses during a specific time period. This will help you anticipate when you’ll have more money going out than coming in, so you can plan for those difficult periods. Without one, you’re just guessing at whether you’ll have the money you need when you need it, and you'll increase your chances of facing late payments and other penalties on past due invoices.
Cash-flow issues are one of the greatest challenges business owners face. If you are proactive about unpaid invoices, keep a cushion of savings on hand, and create a budget, you’ll increase your potential for long-term business success. As a business owner, you may not have time, or know how to plan for cash flow issues. This is one of WSC Business Solutions’ expertise’s! Let the experts here at WSC lend you a hand, so that you can focus on the frontline of your business. Contact one of our Growth Partner Associates today.
Stay Focused. Grow Confidently.
Written By: Lindsey Baird | WSC Business Solutions