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Tips For Maintaining A Healthy Cash Flow

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Any successful business owner can tell you that for the survival of the business, a healthy daily cash flow is more important than growth or profit levels. It allows you to plan your business’ growth, making sure that your business carries on without a hitch regardless of unseen circumstances, such as when a large amount of business is suddenly lost or when clients take longer than usual to pay their invoices. Another benefit of having a healthy cash flow is that more cash on hand allows you to avoid debt, and paying high interest rates and late payment charges on credit purchases. Maintaining a healthy cash flow is made easier by following the tips below:

1. Have a good idea of your revenues and expenses

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Just within a few months of starting out on your own, you will have a general idea of the expenditures and incomes that you have from your business. The inflow and outflow of the money will allow you to have a vague idea of your monthly budget and thereby, you can plan accordingly how much cash on hand you need to get through the month and also generate profits at the same time.

2. Make Invoicing an easier process

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No business owner likes to chase after his or her clients on late payments. However, for the survival of the business, you should invoice your customers promptly and also be clear on the terms of payment with your clients as well as your supplier. Rather than billing your customers at the end of the month, bill them promptly at the completion of the job in order to receive the payment at the earliest.

3. Have a fore-vision on cash flow forecasts

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While you make a monthly budget, make sure you also budget your cash flow on a weekly basis in order to get a good idea of the seasonal crests and troughs of your business. This will allow you to plan a huge expenditure on a short notice.

4. Run Stress Tests from time to time

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Another good way to stay safe is to stress test your liquidity. Ask yourself if the business can handle a 5% increase in business followed by a sudden 10% dip and still keep going. If the business would struggle under such circumstances, adjusting the way you trade will help ensure you hit the sweet spot of growing to your potential without risk of over-reaching.

5. Have a Backup Plan

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As is always recommended, do not put all your eggs in one basket. Always have a contingency plan in place so that you can feel secure in taking small risks. Maintain a small line of credit or have some spare cash ready in case a situation arises where you might need to use them. Do not wait for the situation to come to you and be prepared beforehand.

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