Five Tips for Mastering Cash Flow Woes

What is that old saying? “Revenue is vanity, profit is sanity, cash is reality.” No matter how good you look on paper, if you can’t pay the bills, you have a problem. So how do we manage cash flow to keep some greenbacks in the till?

               When we talk about tangible money, we’re focused on managing when cash is coming in and how fast it’s going out. That sweet spot of having cash in hand is what makes your business hum or choke, and I have always preferred cash accounting over accrual accounting. I know, the big picture helps you forecast trends, but the itty-bitty-nitty-gritty details like dollars and cents matter to me.

               Let’s look at five ways to master your money.

               Be diligent in keeping your books. If you can’t find the leak in the dam, you can’t plug the hole. Track expenses and income to monitor your business health. Only maniacal attention to every expenditure creates a clear picture. If you use a credit card, this eliminates the need to tote around a small ledger, but find a way.

               Print Out Cash Flow Statements. You may have an accountant or bookkeeper. That’s wonderful. If you don’t, invest in software to provide this function for you. The American Express top two picks are planguru and float. If you’re more of a one-man show, you can calculate this yourself: Count your cash on hand, and add in funds expected as clients pay their bills. Schedule your expenses. Monitor inventory so you don’t over-buy.  It’s important to see how each decision is affecting your business health.

               Track cash flow. Take a lowly dollar bill and see how it comes in, how it is used and if it comes back with any friends. Without this kind of information, you’re treating your business without a firm diagnosis and that’s never good!

               Find a way to increase cash flow as needed. If you are relying on a credit card to pay your bills, and if you are unable to zero the account at the end of each month, you need to generate more income. Unlike the federal government, we need to manage our businesses more deftly and generate lots of black ink. Loans are short term fixes. Adding a product line, lengthening business hours and adjusting prices is a more realistic way of freeing up extra money.

               Consider all of your options. Encourage customers to pay on time with discounts for those who pay on time each month. Institute a deposit on orders to ensure your customers will complete the transaction. Give up on product or ideas that didn’t work and focus on what is working. Send invoices promptly and make it easy to pay.

               Slash spending. A famous household maxim in our little domain is always true: You can either make more or spend less. We usually focus on spending less. The tried and true methods include reduction of discretionary spending, finding cheaper rent, reducing capital expenditures and discerning payroll costs. If you can assign an employee to an endeavor that generates profit rather than reducing the number you employ,  you will generate loyalty. For example, reduce marketing campaigns and teach an employee to generate free publicity. It’s a win/win.

               At the end of the day, the goal is simple: Pocket more cash. We all know cash is king, but let’s be sure we’re actually wearing that crown.