Cash Is King
If you are a business owner or manager, you likely have a lot on your plate. One of the biggest tasks you face is successfully managing your organization’s cash flow. Cash flow management is time consuming because it involves a lot of moving parts, many different parties, and careful planning.
Handling cash flow well is one of the keys to business success. Perhaps this is an area in which you are trying to improve in 2020. If that is the case, here are some helpful tips to consider:
Maintain a Clear Picture of Your Cash Position
Accurate information is very important. As such, you should regularly monitor your bank account activity in order to keep a clear picture in your mind of your current cash position. Keep an eye out for any unexpected charges or mistakes.
Use Your Current State to Craft a Cash Flow Forecast
Use the information about your current cash flow state to make a forecast. Make a monthly calendar that includes both incoming and outgoing cash. Make note of any areas where cash will be tighter. Develop one or more contingency plans in the event that you hit a cash flow snag. For example, consider taking out a line of credit to have available for when you might need it. The great thing about this type of account is that it only charges interest if you use it.
Pick the Ratios That Work for Your Situation
There are many cash flow ratios that business owners and managers can use to inform their situation. The key is to find the strategy that works best for your organization. For a helpful breakdown of the different cash flow ratios, check out this article.
Put Your Cash to Work
If you are fortunate enough to have cash available, you can use it to your advantage. Keep it in an account that will allow it to accrue interest. It is very important, however, that the cash remain immediately accessible. You might be tempted to put it into a higher-return account, such as a 30-day or 60-day CD. Earning more interest is great—until you need your cash and are unable to access it quickly.
Spread Out Your Expenses
Rather than lumping your outgoing expenditures at one time during the month, consider spreading out your payments. If you are worried that you will forget a bill, set up an automatic payment, or even just a calendar reminder. You can even consider asking your vendors if they would be willing to extend your payment terms from monthly to quarterly, if that would work better for your cash flow schedule.
Adjust Your Payroll Strategy
There are a few options for adjusting payroll in order to benefit your cash flow. Firstly, consider switching to direct deposit, if you do not use it already. You can save both time and money by not writing checks. We recommend that you open a payroll account and transfer the appropriate amount of money into it right as you issue checks. That way, your cash can stay in the interest-accruing account for as long as possible.
Another cash-flow positive payroll technique is switching to paying your employees twice each month, rather than every other week. This reduces your yearly pay cycles from 26 to 24, which saves you both time and money.
Have a Solid Back-Up Plan
In spite of the efforts you make to ensure positive cash flow, it is always possible that you will run into a hitch. As such, you should have a strong back-up plan in place. Concentrate on maintaining a good business credit score so you can access plenty of credit if and when you need it. Consider using a business credit card, if you do not already have one. The card helps in two ways: using it regularly (and paying it off in full each month) helps strengthen your credit score and having it available helps in the event of an emergency.