Last Updated on Oct 5, 2021 by James W
When it comes to financially managing a growing organization, cash becomes king. The space of time where you need to pay your employees and suppliers and the time you have to collect money from your customers is a common issue.
The main solution to this logistical matter is cash flow management. In essence, cash flow management entails prolonging outlays of cash for as much as possible while motivating all parties who owe you money to make a payment as quickly as possible.
Below are four steps to help you keep tabs on the money coming in and out of your growing organization:
How to measure your cash flow
Make preparations for cash flow projection for the following year, next quarter and if things are looking shaky for your enterprise, prepare a cash flow projection for the following week. A precise cash flow projection can notify of any trouble before it comes. But before you start the process you should save by buying DERV in bulk.
You must understand that cash flow charts are not visions of the future. They are simply educated predictions that balance a lot of factors. Included in these factors is your client’s historical payment record. Your ability to identify upcoming expenditures accurately. Your vendor’s ability to wait also plays a role.
Be on the lookout for supposing without reason that receivables will continually come at the same rate and frequency they did in the past. Also, don’t assume payables are extendable as far as they have in the past.
In your forecast ensure, you have incorporated expenses like loan interest, principal payments, capital improvements. Ensure that you have included seasonal sales fluctuations in your prediction.
Begin your cash flow forecast by adding cash you currently have at your disposal at the start of the period. Add this together with any other cash you will receive from different sources. During this process, you will find this information from your collections, credit workers, salespeople, service representatives, and your finance department.
Under all the different departments, you will be posing the same question: what is the amount of cash received in the form of interest earnings, partial collection of bad debts, customer payments service fees, and other sources?
The next step to making a precise cash flow forecast is to know the dates and amounts of upcoming cash outlays. This means knowing more than just where each cent will go, you also need to know what each penny will be spent on.
In your projection include a line item for all important outlays. Including inventory, rent, wages, salaries, benefits paid, equipment bought for cash, other taxes withheld, debt payments, professional fees, office supplies, utilities, equipment and vehicle maintenance, fuel, cash dividends, and advertising.
Make receivables better
If you received money for sales just after you made them, then having a cash flow issue would never be an issue. Unfortunately, that never occurs, but you can certainly enhance your cash flow by taking care of your receivables.
The standard aim is to accelerate the speed at which you convert supplies and materials into products, receivables into money, and inventory into receivables. Here are a few methods you can use to do this.
- Provide discounts to customers who pay their bills quickly.
- Require customers to include deposit payments at the same time orders are taken.
Top-line sales growth can cover many issues – sometimes a bit too well. When you are nurturing a growing organization, watching expenses carefully is very important. Don’t slip into complacency by only extending sales. Whenever you witness expenses expanding faster than sales. Reassess your costs carefully to find out where you can control or cut them. Below are a few tips you can use to manage your cash flow wisely.
- Have a read at your creditor’s payment terms and take complete advantage of them. For example, if the deadline for your payment is due in 30 days, don’t pay it 20 days early.\
- Make use of electronic funds to transfer money to make payments on the last day they are due. This will keep you relevant to your suppliers while you retain as much of your funds for as long as you can.
Lastly, soon, you may find yourself in a position where you don’t have enough cash to pay your bills. Although this can happen, it does not mean you have failed as a business person, it just means you’re an entrepreneur who hasn’t learned how to predict the future realistically. This is a conventional everyday practice in business that can help you foresee any shortfalls before they happen.
To manage this, basically what you need to do is, select the bills you need to pay carefully. Don’t only pay the small ones and allow the rest to slide. Make payroll a priority – never miss a payment deadline.
Always be mindful that, an unpaid employee will quickly become a past employees. Pay critical suppliers next. Then ask other role players, if you can make a partial payment or skip a payment and pay later.