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Business Cash Flow Management: Best Practices

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It is crucial that as a business person, you know how the cash you release is being spent. Cash flow management ought to take a considerable bulk of your managerial priorities. Failure to do so can yield unfavorable results.

This is where top-notch bookkeeping comes in. If your financial ledger does not miss a beat, it will be easier for you to check how your money moves around. You are assured of the utmost accuracy of the information you’re getting as well. That means you can decide how to go about spending, curbing bad practices, and zeroing in on what your business is doing right money-wise.

But error-free bookkeeping is but one of the ways you can ensure your cash flow management’s expertly done. Here are other best practices you may emulate.

Prompt invoicing

As soon as you have delivered the goods, or provided the service, issue your clients with an invoice. When you delay providing an invoice, the obvious result is delayed payments. So if you want to keep your cash flow sustainable, be prompt with those receipts.

Close monitoring

Just because you have a financial team managing your cash flow does not mean there’s no need for you to look at those ledgers closely. In fact, the opposite should be the case. You should work alongside your financial team in monitoring how your cash is spent.

To actively participate in your business’s financial aspect, you need a basic understanding of accounting. This is something you can study on your own. Or you can enroll in online classes. Your goal is to have a working grasp of accounting concepts, enough for you to question any irregularities in your financial ledgers.

Be proactive

Do not try to solve problems when they arrive. Try to solve problems before they even happen. This is most true when it comes to financial matters. For example, if you can anticipate a cash shortage early enough, you will have the chance to deal with it proactively.

You can inform your bank or suppliers in advance about your upcoming financial challenge. In turn, they will become more understanding of your situation and might even give you some financial leeway.

Grow slowly but surely

financing

One common pitfall in business management wants to expand as fast as possible. There’s nothing wrong with dreams of expansion per se. But keep in mind that growing your business means paying for more resources, from workers to raw materials and everything in between. Those things require cash.

If your available capital in the form of cash won’t suffice, chances are you will have to borrow from lenders. Here the risks are big. If your exponential expansion fails, you’ll have exponential losses to deal with.

Have a backup plan

Ideally, from the time you started your business, you already have a backup plan for when your finances fall short. This is something you can discuss with your financial team. Should a cash flow crisis present itself, what troubleshooting opportunities are available to you? For example, do you have wealthy friends who can bail you out and willingly invest in your business without asking for too much in return?

Drawbacks of poor cash flow management

There could be many drawbacks to poor cash flow management. One of the most critical is the risk of accumulating bank interests and charges. This is when you regularly need to replenish your funds from the coffers of private lenders. You might also miss game-changing opportunities. For example, there’s new technology in the market. And it can potentially expand your operations, but due to a lack of resources, you might not be able to invest in it.

Poor cash flow management can also compromise your relationship with suppliers and customers. You might regularly fall behind with supplier payments, or you might become too dogged with selling to customers for that additional cash that you end up being quite unliked as a business person.

Lastly, there’ll be so much stress to deal with if there’s never enough money to go around. The rest of your team will feel this stress. Before you know it, your staff’s morale has sunk so low to even be salvaged. If your money problems persist, you might need to eventually declare insolvency and go out of business.

To avoid those risks, follow the cash flow management best practices we’ve mentioned above. They are simple and straightforward. They will only require dedication and consistent application from your financial team. Once you fully-commit to these practices, in no time, your business will be steered in the right and most rewarding direction.

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