Cash Flow Is What Drives A Business: Five Tips On How To Maintain It

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Cash flow is the engine of the business. A business without properly managed cash flow is like a boat that has been left to float in the current. Cash flow is key for all businesses but very critical for startups. If you are a startup and fail to manage your cash flow within the first year of your business, chances of your business seeing its second birthday will be low. Here are some tips on how to manage your cash flow:

Have a business account

Differentiating a business account from a personal account is one way of sustaining your cash flow.  Many businesses struggle to remain afloat because their owners use the business bank account as their own personal account. The moment you start using money from a business bank account to pay your own personal bills like house rent, car and other expenses other than those related to the business, your business will be heading in a wrong direction. Having a business account helps you to know how much is coming into the business, how much is going out and, therefore, in a position to plan on your spending.

Maintain cash reserves to cushion you

Every business goes through challenges at a certain point. It is always wise to have a cash reserve that you will fall back to in the event your business runs dry of cash. This will also protect you from having to dig deeper into your own pocket to fund the activities of your business. Having a cash reserve will ensure that your business remains stable in case of a fiscal imbalance.

Check on your spending

One way of managing your cash is to check on your spending. The first place that one should check when there is a problem with cash flow are the areas money is going to. An imbalanced cash flow is often caused when one spends more than what is coming into the business. For instance, how much are you spending on paying your employees? Are your employees consuming more than they are bringing in?

Monitor your cash flow

You cannot manage what you cannot measure. You need to monitor your cash flow and if you are not in a position, hire someone you trust to help you with it. Have a cash flow sheet that will help you track and follow the flow of cash in and out of your business. The sheet can be both manual and electronic. For safety and confidentiality reasons, store the sheet in the ‘clouds’.

Encourage your clients to pay on time

When clients delay paying, they interfere with the cash flow. Make it known to your clients that they need to pay on time. This will help to budget and managing the affairs of your business. In most cases, most businesses insist that clients pay 30 days from the day of delivery. One way of ensuring that clients pay on time is having them sign a contract to commit themselves. Also, make sure you do work after you get an LPO which means that what you are to supply whether a product or service has already been approved.

Here are some other tips for entrepreneurs  7 Common Financial Mistakes & How To Avoid Them

Featured image via www.attractcapital.com.

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