51ÊÓƵ

Running aÌýsuccessful business isÌýlike planting aÌýgardenÌý— itÌýrequires careful nurturing andÌýattention toÌýensure that theÌýroots ofÌýcash flow remain strong, enabling theÌýbusiness toÌýbloom andÌýflourish.

InÌýfact, knowing how toÌýhandle cash flow inÌýaÌýbusiness can make orÌýbreak it. Let’s dive in!

What IsÌýCash Flow Management?

Before going anyÌýfurther, let’s examine what cash flow means.

Simply put, cash flow management isÌýmonitoring, tracking, andÌýoptimizing theÌýinflow andÌýoutflow ofÌýmoney throughout theÌýbusiness. The goal isÌýtoÌýforecast needed funds toÌýcover expenses like bills, debts, payroll, andÌýmore.

The Categories ofÌýManaging Cash Flow

Cash inflow means money coming into theÌýbusiness through sales, earned interest, andÌýmore. Cash outflow isÌýtheÌýmoney going out ofÌýtheÌýcompany toward expenses.

AÌýfew categories are used toÌýclassify cash flow transactions throughout theÌýcompany:

Cash Flows from Operating Activities

Cash flows from operating basically mean theÌýmoney moving through regular business operations. ItÌýincludes inflowing cash from sales income andÌýoutgoing costs forÌýproduction, supply, andÌýmore.

Cash Flows from Investing Activities

This cash isÌýgenerated orÌýspent through investment activities. ItÌýmay involve outflows like buying securities, properties, orÌýbusinesses. Inflows can come from selling other companies orÌýsecurities.

Cash Flows from Financing

Financing cash flow represents theÌýfunds aÌýbusiness raises andÌýrepays toÌýinvestors over aÌýspecific period.

How toÌýManage Cash Flow

Business owners need toÌýlearn how toÌýmanage cash flow asÌýearly inÌýtheir journey asÌýpossible. The best way toÌýstart theÌýprocess isÌýwith cash flow statements.

AÌýcash flow statement records theÌýinflow andÌýoutflow ofÌýcash through theÌýbusiness during aÌýspecific period. ItÌýcould beÌýaÌýweek, month, year, orÌýanother custom time frame. Owners can effectively monitor cash flow inÌýtheir business byÌýtracking anyÌýdesired period.

The correct period track can depend onÌýtheÌýsize andÌýoperation ofÌýtheÌýparticular business. Many businesses track their cash flow week-to-week, but other small businesses may only need toÌýdoÌýitÌýevery month.

With small businesses, itÌýcan often beÌýchallenging toÌýtrack andÌýforecast too far into theÌýfuture. AÌýgood rule ofÌýthumb isÌýtoÌýplan around 6-8Ìýweeks ahead ofÌýtime.

Steps toÌýStarting Cash Flow Management

Now, let’s look atÌýsome effective cash flow management strategies forÌýbusiness owners.

Forecast Expenses

Forecasting expenses andÌýfinancial obligations isÌýtheÌýfirst step towards mastering cash flow management. Make aÌýrecord ofÌýeverything theÌýbusiness has toÌýpay, including:

• Rent
• Payroll
• Subscriptions
• Loan repayments
• Production costs
• Anything else that takes out ofÌýtheÌýbottom line.

Include all anticipated business expenses forÌýtheÌýupcoming weeks. Recalling every detail from memory might beÌýchallenging, soÌýconsider reviewing bank statements orÌýinvoices toÌýensure comprehensive coverage.

Forecast Earnings

The next move isÌýtoÌýpredict incoming revenue andÌýearnings. Take into consideration theÌýweekly revenue inflow. Earnings may vary weekly, soÌýaim forÌýasÌýmuch accuracy asÌýpossible. Forecasting will get more manageable asÌýtheÌýbusiness continues toÌýrun over time.

There are several factors toÌýconsider when accounting forÌýupcoming revenue.

Firstly, consider anyÌýguaranteed income, such asÌýsubscriptions orÌýservice contracts. These will beÌýtheÌýeasiest toÌýforecast ahead ofÌýtime.

Then, try toÌýforecast future sales from new customers orÌýclients. ItÌýwill beÌýharder, but past data can beÌýreviewed toÌýgenerate anÌýestimate. IfÌýthere isÌýdata available from theÌýyear prior, check into what theÌýperiod was like theÌýprevious year forÌýanÌýestimate.

Pro tip: IfÌýyou sell online with 51ÊÓƵ, you can use theÌýReports dashboard toÌýcheck your previous sales data andÌýtrends toÌýmake anÌýeven more accurate prediction.

Also, make sure toÌýaccount forÌýseasonality. IfÌýthere are anyÌýupcoming holidays orÌýpromotions, these could positively orÌýnegatively impact revenue, depending onÌýtheÌýindustry.

Balance Out Revenue andÌýExpenses Forecasts

The next step isÌýtoÌýbalance out theÌýtwo separate forecasts toÌýunderstand theÌýcash left inÌýtheÌýbusiness. The basic calculation forÌýthis isÌýsubtracting theÌýmoney out from theÌýcash in. Doing this forÌýaÌýmonth will tell theÌýbusiness its financial position forÌýtheÌýend ofÌýtheÌýmonth.

ByÌýunderstanding this, theÌýbusiness can make informed decisions andÌýuse theÌýremaining cash effectively. ItÌýisÌýtheÌýstarting point forÌýmanaging their finances asÌýthey embark onÌýaÌýnew month.

Initially, this may beÌýaÌýbit complex orÌýtedious, but asÌýitÌýbecomes aÌýregular practice, it’ll get much more manageable. You can find aÌývariety ofÌý online toÌýkickstart your business, along with specialized cash flow management software.

Cash Flow Management Techniques forÌýSuccess

Now that we’ve covered theÌýgeneral basics ofÌýmanaging cash flow, let’s look atÌýsome ways toÌýimprove it.

Track Your Business Financial KPIs

The first step inÌýeffectively managing cash flow isÌýtoÌýtrack andÌýunderstand your business’s financial KPIs (key performance indicators). These metrics can help you gauge theÌýoverall health ofÌýyour business.

Some examples include revenue, profit margin, andÌýexpenses. ByÌýmonitoring these KPIs regularly, you can quickly identify anyÌýpotential issues with your cash flow.

For example, ifÌýyour profits are decreasing while expenses are increasing, this could signal that you need toÌýmake some changes toÌýimprove your cash flow.

IfÌýyou sell online with 51ÊÓƵ byÌýLightspeed, you can track some ofÌýyour business’s financial KPIs with theÌýbuilt-in Reports. This tool lets you view andÌýanalyze your real-time sales, profits, expenses, andÌýother vital metrics.

The Accounting section inÌýtheÌýReports isÌýespecially helpful forÌýcash flow management, asÌýitÌýlets you stay updated onÌýyour financial flows. ItÌýprovides valuable insights into your store revenue, expenses, average order value, andÌýaverage revenue per customer andÌývisitor.

Learn more: Essential Business KPIs forÌýOnline Stores &ÌýHow toÌýTrack Them Like aÌýPro

InÌýaddition toÌýtracking financial KPIs, it’s also important toÌýregularly review your financial statements, such asÌýbalance sheets, income statements, andÌýcash flow statements. These documents provide aÌýdetailed overview ofÌýyour business’s finances andÌýcan help you identify anyÌýareas that may need improvement.

Consolidate andÌýControl Inventory

Stagnant orÌýunderperforming inventory can beÌýaÌýquick way toÌýsuck upÌýcash flow within aÌýbusiness.

BeÌýsure toÌýconduct regular inventory evaluations toÌýreview supply andÌýdemand, which products aren’t selling, andÌýwhich are. ItÌýwill allow theÌýbusiness toÌýremove stock ofÌýproducts that aren’t contributing toÌýtheÌýcash flow andÌýstock more ofÌýtheÌýproducts that are. ItÌýcan help toÌýcut down costs onÌýproducing underperforming inventory, asÌýwell asÌýtheÌýassociated storage costs.

Another important KPI toÌýtrack isÌýyour inventory turnover ratio. ItÌýmeasures how quickly you sell through your inventory andÌýcan give you insights into your inventory management efficiency. AÌýhigh inventory turnover ratio means you are effectively managing andÌýselling your products, which can positively impact your cash flow.

Negotiate with Suppliers

Cutting down onÌýsupplier andÌýmanufacturing costs can beÌýanÌýeasy way toÌýkeep more cash inÌýtheÌýbusiness. AnÌýessential part isÌýlearning how toÌýproperly negotiate with suppliers toÌýachieve theÌýbest but most harmonious arrangement.

ItÌýmay beÌýdifficult forÌýbusinesses starting out, asÌýsuppliers may not beÌýwilling toÌýgoÌýdown much onÌýbeginning orders. However, asÌýtheÌýcompany maintains andÌýbuilds aÌýrelationship with theÌýsupplier, they should arrange better terms. Some suppliers may even offer early pay discount options.

Lease, Don’t Buy

This point seems counterintuitive atÌýfirst. After all, long-term equipment andÌýproperty leasing typically becomes more expensive than buying. However, this isÌýaÌýbetter option forÌýbusinesses that don’t have aÌýlot ofÌýextra cash toÌýtoss around.

Leasing means paying inÌýsmaller increments, which can improve cash flow over monthly periods. Additionally, every lease payment isÌýaÌýtax write-off.

Take Advantage ofÌýHigh-Interest Savings Accounts

Many banks offer that can perfectly capitalize onÌýtheÌýcurrent in-house cash. Deposit money into aÌýsavings account with 1%Ìýinterest orÌýhigher toÌýearn additional funds that can help prepare forÌýfuture expenses. Some banks even offer business bank accounts with interest rates ofÌý4%ÌýandÌýhigher.

Benefits ofÌýEffective Cash Flow Management

Managing cash flow can initially seem tedious, but itÌýcan also benefit aÌýbusiness inÌýmultiple ways, such as:

Reduce Stress

Managing cash flow will help businesses know they have all expenses covered andÌýwhere they stand each month. ItÌýtakes aÌýlot ofÌýtheÌýguesswork andÌýworry out ofÌýpaying bills.

Plan andÌýCover Shortfalls

Knowing where theÌýbusiness stands onÌýexpenses can help inÌýplanning forÌýandÌýhandling shortfalls orÌýdifficulties. IfÌýitÌýlooks like theÌýbusiness will beÌýshort one month, they can preemptively run promotions toÌýdrive sales orÌýask forÌýaÌýdelay onÌýrent. While this isÌýhopefully never theÌýcase, every potentiality can’t beÌýpredicted, soÌýit’s better toÌýbeÌýprepared andÌýknow ahead ofÌýtime.

Improve Inefficiencies

When you dive into theÌýbusiness’s cash flow andÌýbrainstorm ways toÌýenhance it, you might uncover inefficiencies inÌýhow things run. Take supplier costs, forÌýinstance. Say you’re going through theÌýcash flow andÌýrealize aÌýbig chunk isÌýgoing into manufacturing expenses. So, you start negotiating forÌýaÌýbetter deal. Maybe this didn’t cross your mind earlier, orÌýyou’d have looked into itÌýway down theÌýline.

Budgeting Accuracy

Budgeting may not beÌýtheÌýmost exciting task, yet itÌýplays aÌýcrucial role inÌýbusiness andÌýpersonal finance. ByÌýconsistently managing cash flow, companies can establish aÌýmore accurate budget, enabling better predictions andÌýdecision-making down theÌýline.

51ÊÓƵ IsÌýHere toÌýHelp You Launch Your Ecommerce Store

Launching anÌýecommerce store has never been easier inÌýtheÌýmodern age. IfÌýyou are considering starting your own online store, can help you make itÌýhappen. Our selling platform isÌýeasy toÌýuse andÌýprovides you with robust online selling tools.

Apart from aÌýbeautiful ecommerce website, you’ll also get tools like Reports andÌýintegrations with accounting software like FreshBooks, Xero, orÌýQuickBooks toÌýhelp you better manage your finances. These tools will help you understand where your money isÌýcoming from andÌýwhere itÌýisÌýgoing, giving you theÌýability toÌýmake informed decisions forÌýtheÌýfuture ofÌýyour business.

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