Financials

Running a business is a lot like spinning plates. However, when it comes to prioritising where to direct your energy, if there’s one thing that every entrepreneur and small business needs to get right, it’s cash flow management. Effective cash flow management is what makes a business viable. Without it, you can’t grow, develop or even survive from one day to the next. So, how do you manage your cashflow like a pro?

1. Keep an eye on your costs

Excessive costs can be incredibly damaging to cash flow so working to keep your expenses down will give you an advantage when it comes to cash management. Wherever you can, look for ways to minimise what you’re paying for overheads, whether you’re leasing furniture instead of buying, or automating tasks. Remember that it’s always much easier to add to your costs budget as you grow than to have to start cutting expenses that have become unaffordable.

2. What’s your cash flow balance right now?

If you can’t answer that question then you’re not truly on top of your numbers. Knowledge and awareness are the most fundamental elements of cashflow management. If you can’t name your cashflow balance right now then you’re essentially making business decisions in the dark, which can be disastrous.

3. Bank balance vs. cash balance

These two balances are very different. You should be reconciling your figures against the bank balance but making cash flow management decisions from the cash balance. The two are rarely the same and you’ll find that you end up with no real idea of what cash you have available if you’re using the wrong one.

4. Stay on top of your books

Your accounting and reporting provide the mechanism and backbone for your cashflow decisions and they need to be in good shape. It’s very easy to get into trouble with company books – they often seem like a very low priority, as compared to some other business decisions. However, the quality of cashflow management you have will depend on the accuracy of your books so don’t skimp on spending time on them.

5. Build a cash reserve

No matter how clever you are with your cashflow management, there are some eventualities that will still floor you. That’s when a cash reserve is an important asset. This will provide you with a buffer against unexpected events and a pot to dip into so that you can cover the kinds of costs that might otherwise sink the ship.

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