Having good cash flow management is not only important but crucial to any business. If your cash flow is terrible, chances are your business won’t stay afloat for very long.
So what is cash flow exactly? Simply put, cash flow is basically the amount of money you have on hand to keep your business running. For example, let’s say you have a VA you pay monthly, as well as a few online services for your freelancing business. If you have good cash flow management, it means you have the money ready on hand whenever your bills are due whether or not your clients pay you on time.
Now that you know what good cash flow can do for your business, let’s talk about some best practices.
Forecast The Future
This may be hard if your business is new but the more you can predict how much you’ll need to be spending on your business, the better.
So gather up all your bills you have. This is how much you’ll need for the next month. To be even more prepared, look at any services you plan on using for the next few weeks or months. Add those up and that is your projected cash flow.
Making these more detailed is also important. Write down the dates of the things need to pay out as well as what they are. Think of things like rent, website hosting or even general supplies. Then mark down (if possible) what invoices have been sent to your clients and customers and when you expect the cash to come in for those. That way, you know what times of the month you need to have a bit of a buffer.
Keep in mind that these cash flow documents aren’t set in stone. They’re merely used as a guide to see how much money you need over a certain period of time. Having these numbers will help you see at least how much cash you need to have on hand.
Get Paid Faster
Ok, this one is not necessarily within your control, but there are ways you can help get paid faster. Things like setting up reminders for payments, having more than one payment option (e.g credit cards, Paypal, paper check) or payment portals will all help you. Being paid faster or on time can help ease the pressure when it comes time to pay your service providers.
Don’t Make Early Payments
Please don’t take this as paying things late. What I’m getting at here is that you never know when an emergency pops up , so wait until closer to the payment due date to pay off something. For example, let’s say you have two expected payments on the 18th of the month and you have a few bills due the 22nd. You decide to pay one of your bills off early on the 15th thinking all your clients will pay on time. On the same day, you found out you needed to repair your laptop.
Lo and behold, one client is late on theirs and promised it’ll come by the 20th. Had you waited to pay your initial bill, you would have had enough to cover all expenses in time.
Cash flow best management practices really take a lot of trial and error. Be open to trying new systems and processes and find what will best for your business.
Looking for more on starting a successful business? Check out these great articles