Cash management must be a top priority for small-business owners. If your cash flow doesn’t balance out, you’ll find yourself in deep water fast. Developing good cash-flow management habits is crucial to getting your company through the first few years of being in business and well beyond.
Rule 1: You’re never too busy to invoice. Ever.
Running a company from day to day can be time consuming, and it’s easy to let paperwork (physical or digital) pile up - but if you’re not invoicing, you’re not receiving money. Get those invoices sent on time so you can get paid on time.
Tip: Use an invoicing software that triggers an invoice to be sent when a product or service is delivered, and sends a reminder before the due date if needed. An alert can be programmed as well to tell you when someone doesn’t pay on time.
Rule 2: Always have a cash reserve. Always.
A cash reserve is a must when you’re running a business. At any moment, a personal, local, or global crisis could send your company into a tailspin. Having a cushion to help protect your investment in your small business could be vital to its survival. Part of managing your cash flow is making sure you’re covered in case of an emergency, so save those extra dollars and don’t touch them unless you absolutely have to.
Tip: If you hit a rough patch with your cash flow consider a small business loan. You can use your reserve to pay it back later if necessary, but if you use up your reserve and your cash flow situation looks bad, getting a loan later could be harder.
Rule 3: Keep meticulous books, no matter what.
Having immaculate records can keep you out of trouble and make it easy to resolve issues if questions are ever raised about your cash management. Hate bookkeeping? Use accounting software and/or hire out the tricky bits, but don’t let your books slide.
Tip: Remember that if you use a credit card to pay for anything, it doesn’t actually impact your books until you pay the credit card bill. Don’t slip up and double-debit your books - that’s a rookie mistake!
Rule 4: Be nice to your customers, but not too nice.
Being too lenient with your customers can lead to putting yourself in an unnecessary cash crunch. Carrying a balance for a customer weakens your cash flow, so invoice, follow up and follow up again until you reach them. Australia makes payment terms part of contract law, so the only one preventing you from getting paid is you if you aren’t sending out invoices promptly.
Tip: You don’t have to be mean, but you can’t afford to be a pushover. Track your accounts receivable turnover and have a plan in place for aggressive pursuit of payments owed if necessary.
Rule 5: Don’t mix business and personal finances. Just don’t.
If you invest your own money in your small business, make sure you only invest what you can afford - and then make that the end of it. Your company may succeed or fail, but protecting your personal finances should always take priority.
Tip: Have a completely separate banking account and business debit card for your company. This will keep all of your payments and purchases from mingling and keep you apprised of where your own money is and how your business cash flow is doing.
Need a little help with your business' cash-flow management? Why not stop into your local BOQ branch and talk to an expert about business banking today?