After you have figured out how to start a business, and gotten things rolling, you may think you are good to go. Unfortunately, if this is your attitude, you may run into a few roadblocks along the way. Something that you can’t overlook is the possibility that you may eventually run out of money if you don’t plan carefully.
If you try to run your business without carefully managing your cash flow, then you’re not going to make it very far. Instead of risking all the hard work you have put into building your business, make sure you start off right. Keep reading the information here so you can learn how to effectively manage your business’s money.
Know When You are Going to Break Even
You need to know at what point your business is going to break even. While this may not directly impact your cash flow, this figure is going to give you certain goals you can work toward. It will also give you a target to forecast where your cash needs to go to achieve that goal.
If you keep your focus on your goal, and the various milestones that you need to hit to achieve this break-even point, then you will be much smarter when it comes to spending your startup capital. You’ll also be set to budget accordingly.
Focus on Cash Flow Management
It’s important not to focus too much on your profits. Even though this could sound somewhat contradictory to the point above, it’s not. You only look at your break even point and your business profits to set your benchmarks. You still have to focus on spending and cash flow. This isn’t something that will change just because your business has reached the point of being profitable.
Also, looking at these numbers once a month isn’t going to be enough. You need to check your business and personal finances on a weekly basis to know what is going on.
Keep a Cash Reserve On-Hand at All Times
Regardless of the projections you have for your startup, you are going to experience shortfalls. This is something that happens to every single business, even when the best plans have been put in place. The survival of your business is going to be depend on how you are able to overcome those shortfalls. By creating and maintaining a cash reserve, you can reduce the impact, stress and distractions that may come with having no money. As a result, you can stay focused on growing and developing your business.
Be Smart When Managing Business Funds
In some cases, it’s completely unavoidable, but if you don’t have to handle the money for your business, don’t. This includes everything from handling your accounting, tracking profits, and even the work done to calculate total gross pay for employees – it’s best to avoid doing this on your own.
Instead, hire a CFO or an accountant to take care of this for you. If you are not at the point where you can afford to hire this additional help, then it is smart to get one of your employees to take it over.
Another option to consider is by using a software system for cash management. There are many programs available today that offer accounting software to make the management of your business’s cash much easier. The goal here is to avoid doing this type of work on your own, as it can lead to issues down the road.
Don’t Wait to Collect Receivables
When creating invoices, make sure they read “due immediately.” Also, be sure to limit the use of any net terms that extend past the 15-day mark. If possible, assign an employee to keep an eye on your business’s receivables, along with customer follow-up. This can help ensure you receive your money as fast as possible.
Provide Discounts for Early Payments
If you have no desire to wait for the normal net terms to pay out, then it’s may be smart to provide a discount for customers who pay early. If you have employees who are dealing with your collections, be sure that you have guidelines that state the customer’s eligibility for a discount. It’s important to always stick to and enforce the standards, as well.
When Possible Extend the Payables
While there’s no question that you want to receive payments as quickly as you can, you also have to be willing to work with your vendors and suppliers. Getting the best deal isn’t impossible, but it does require time and effort. For example, it might be wise to use a net 60 for your payables. If possible, choose something even more than this.
Only Spend Money on Essential Items
Part of any business’s forecasting model needs to provide a clear view of the expenses that are absolutely necessary. Besides the purchases that are absolutely essential, you need to work to minimize your spending, while eliminating costs that are not absolutely essential to your business. It’s important to do this until your business becomes profitable, at least.
When Hiring New Employees Be Smart
There are some people who have given the advice that you should not hire anyone until you absolutely have to. While that is fine advice, even better advice is to use a smart hiring approach. If you are able to recruit the top, talented people in the field, then a highly skilled employee is going to have the ability to handle all the work that two (or even more) mediocre workers could do.
While you may have to spend a bit more on benefits or the person’s salary to attract this top talent, it’s still going to be less than what you would spend on several employees trying to do the same job, and who make several mistakes throughout the day.
Another issue is that they may wind up quitting. This would require you to begin the entire process once again. With it costing around $4,000 to hire a single employee, it’s crucial that you are smart about who you recruit and hire if you are at the point where you need to hire someone.
According to experts in the field, one of the biggest secrets to hiring someone successfully is to try and find the people who are dead set on changing the world.
Use Technology to its Full Potential
Technology is everywhere. As a result, you need to make sure you are making the most out of it. Don’t forget to always backup your work in some way. A great option is cloud storage. There are several benefits offered by doing this. First, you will be able to keep your information and data completely secure from theft or loss, and you can avoid local file corruption. However, it will also allow you (and your workers) to access the information that is needed from any location where there is an internet connection.
There’s no question that managing your cash flow when starting a business can be challenging and, at times, overwhelming. However, the tips and information here should help you put a viable plan in place. Be sure to take this seriously, as your capital and profits are the lifeblood of your business – if they run out, there’s a good chance your business won’t remain successful very long. You don’t have to let this happen.