Essentials for a Healthy Cash Flow

Whether your business is just getting off the ground or is several years old, everyone can benefit from examining their cash flow management practices. Maintaining a healthy cash flow is essential for the life of your business. However, not everyone knows where to start. Here are a few tips to help you revamp the way you do business and improve your cash flow.

Send Invoices Out Immediately

Never delay sending out invoices as it can create problems keeping track of transactions and collecting from customers. Invoices should be sent as soon as possible, ideally as soon as a project or a quote is completed.

Use Electronic Payments

Electronic payments just make sense. They are far quicker and more reliable than using snail mail or cash options. Electronic payments make it easier to track cash flow and keep updated records. They also make it far easier to collect since customers find this payment method more convenient.

Set up Direct Debit for Customers

Direct Debit is one of the best ways to improve your cash flow. Using Direct Debit allows you to pull payments directly from the customers’ bank accounts. This eliminates the need to keep track of credit or debit cards. It also irons out the payment process since you simply invoice the customer and collect on an agreed upon date. Knowing when your payments will arrive is key to successful cash flow management.

Figure Out a Break-even Point

Make sure you know your break-even point (the point when your business becomes profitable). This is important, not because it affects cash flow, but because it gives you a target to achieve. Negative profits combined with negative cash flow can be a death knell for a business. Manage your cash flow with the intention of reaching your first profits.

Prioritize Cash Flow Management Over Profits

Using your break-even point as a point of reference, prioritize your cash flow management practices. Even if you are making a profit beyond your break-even point, you must manage cash flow to maintain a healthy business.

Maintain Cash Reserves

Cash shortfalls are an inevitable part of every business. Businesses that make it are those that plan for tough times. Failing to keep some cash reserves could very well mean the end of your business. Starting with cash reserves makes it far easier to focus on cash flow and relieves anxiety you would otherwise feel during shortfalls.