As the term suggests “cash flow” simply refers to the movement or flow of money into and out of a business. Managing this ‘flow’ is one of the primary goals of business bookkeeping, and one of the principal tasks of a business owner. Here are a few tips that we often give our clients. Some may serve as a reminder while others may be new to you.
Tip #1: Keep track of cash in your business
The primary reason most businesses fail is that they simply run out of cash. In order to keep your business running, you need to make sure that you are maintaining a positive cash flow where possible. You should keep track of your cash balance by allocating time each week to review your revenue and expenses.
Tip #2: Don’t focus solely on sales
Many business owners focus too much on how much money they are bringing into their business. They neglect to note what their actual profits are. The truth is that gross income (income before deducting business expenses and taxes) is not that important. What matters is net income, which is your income minus expenses. Always keep focused on how much actual profit, or positive cash flow, your business is generating. This may seem obvious, but you always want to make sure you are bringing more money into your business than is leaving it.
Tip #3: Do cash flow projections
Just as you should closely monitor your current cash flow, you also need to project what you anticipate it will be in the future. Try to estimate what you think your cash flow will be in six months or a year, based on the reality of your business situation.
Tip #4: Set cash flow goals
Doing projections is not enough, you need to set specific cash flow goals. What do you want your business’s cash flow to be like in six months? You need to come up with a target goal, and develop a strategy to help you meet it.
Tip #5: Keep an eye on expenses
Many business owners focus too much on bringing more cash into their business, and not enough on reducing how much cash is leaving it. Reducing expenses is just as important as making more money. It’s not always straight forward, but try and find creative ways to cut expenses in order to raise your business’s profitability.
Tip #6: Use a professional bookkeeping service
What may take you an entire day or two can take a bookkeeper just a few hours. Our clients consider using a professional bookkeeping service a worthwhile investment. We can ensure you are compliant with what the tax office requires and also free up your valuable time.