Understanding cash flow in your small business is important and if you are not financially savvy, a business consultant can teach you how to handle it. Cash flow is basically the transfer of money within your business. Payroll, taxes, contract labour, vendor and supplier payments, rent, utilities and much more fall within this area. Many businesses fail though due to inferior cash management skills.
Importance of Cash Flow
Given the global economic recession, the business marketplace has become quite a challenge, one that will impact your small business structure and operations for years to come. A negative flow of cash can only be sustainable for a short time, particularly for small businesses, before something happens such as foreclosure. As the owner, you must have a tight reign on your finances, particularly cash flow management. You need to hone your forecasting skills and identify key areas that can be improved to turn around that negative trend.
A business consultant is a smart investment if you notice that your finances are not headed in a positive direction. A consultant can help you identify weak areas within your business and they also can find patterns in the cash flow management that can be an indicator of future problems. They can teach you those valuable forecasting skills too.
Getting to know your customer files intimately will help you with payment scheduling, invoicing and other cash flow duties. Do you notice a trend in your customer payments? Do they pay at a particular time each month? If you can identify when your customers pay you each month, you can then create a payment schedule for your suppliers. In addition, you will then know when to follow up with those customers who do not pay in time.
Using the approximate schedule of customer payments as well as that of your own suppliers, you can extrapolate that information out for several months. Also called forecasting, you will have an approximate answer for what to expect in terms of cash flow. This information will help you with scheduling staff to expanding your business operations.
Quality control is an important facet in cash flow management. Do periodic checks on your invoicing system to ensure that sales invoices are being tabulated correctly. Reinforce your payment guidelines; a consultant will tell you to not be afraid to send a delinquent account to collections or to a solicitor. After all, you are in business to make money, not enable your customer’s bad paying habits.
When you have a good handle on cash management, you can confidently plan for business expansions or save resources to tide you through the slower times of year. A business consultant can help you with forecasting and assessing your cash flow issues if you are not quite yet comfortable with handling that aspect of your small business on your own.