When business is good, it can be easy for a business owner to ease up on monitoring their cash flow. It would seem only natural that if the business is turning a healthy net profit, a healthy cash flow would follow. Unfortunately, that isn’t always the case. Failing to closely monitor profit and loss statements as well as the health of your business’ bank account is just one of the cash flow management mistakes you want to avoid.
Cash Flow Management 101
Failing to properly manage business cash is among the most common reasons businesses fail. The cash flow in any business will fluctuate. It’s important to monitor those fluctuations, when and why they occur, and plan for them in the future. You can do this by creating a cash flow forecast. It should include the estimated weekly incoming and outgoing cash as well as estimated monthly income and expenses for the year. This will help give you a clear picture of the health of your business. It will also help prevent you from overspending when your income peaks and instead, saving part of the profits for a downturn in business.
Evaluate Operating Expenses
As a business grows, its operating expenses should evolve with that growth. Not periodically reevaluating those expenses can be a costly cash flow management mistake. Business owners should monitor and ask themselves if each expense is necessary and providing value to their business. If the answer is no, it’s time to eliminate those expenses.
Follow Up on Outstanding Invoices
Failure to vigilantly pursue overdue invoices is a cash flow management mistake that can cause a significant disruption in revenue. It’s important for a business to keep track of when invoices are due. Once they become past due, it’s crucial to step up your collection efforts. Keep in mind that any outstanding invoices are simply your cash sitting in your customer’s bank account. If non-payment persists, it may be necessary to take legal action. Not only will this help you recoup the lost revenue, but it will also subtly send a message to all those you do business with that you won’t tolerate constant or intentional non-payment of overdue invoices.
Tighten Up Credit Requirements
Another important aspect of cash flow management is conducting a thorough credit check before offering customer credit. Even with a good credit report, it is a good practice to keep their credit limit low until a customer proves their creditworthiness. Don’t let the promise of a large order sway you. If the customer proves uncreditworthy, that order will just become an unpaid debt to write off.
No Cash Reserve
Solid credit and collection policies are only part of effective cash flow management. It doesn’t matter if you’re a start-up or an established business, it can be a fatal mistake not to have some money put aside to handle the unexpected. While it may be impossible to be prepared for every unforeseen event, having a cash reserve will provide you with the funds and ample time to figure out how to deal with it.
Cash Flow Management Assistance
Even the most vigilant business owners occasionally experience an event that disrupts their cash flow management practices. CapFlow Funding Group may be able to help. If your business needs an immediate, short-term influx of capital to keep your business moving forward, alternative merchant funding options can be a great solution.
At CapFlow Funding Group, our team of professionals will evaluate your business’s unique situation and help you determine which funding option would best suit the company’s needs. We service many different industries with a variety of different funding needs. In addition to merchant cash advances and invoice factoring, we work with trusted partners to provide additional merchant funding options. Contact us today!