Steps to Avoid Cash Flow Problems

Having control of cash flow is one of the most important aspects of running a small business. As the saying goes “cash is king” and is also the lifeblood of any business operation. If your cash runs out – regardless of how big your accounts receivable or asset accounts are – you could be in serious financial trouble.

The key to avoiding cash flow difficulties is to project your cash flow requirements in advance. This way you will be able to manage your receivables and expenses so you don’t get caught in a cash crisis.

  1. Implement a Good Receivables System
    Set up a system that records sales, generates invoices and monthly statements to track your clients orders. You should also put in place procedures on dealing with overdue payments and have an aging debtors system to see exactly where you are with overdue clients. Having a good accounts receivable system will improve your chances of receiving payments when due.

  2. Project and Track Sales Correctly
    Base your projection figures on conservative estimates, known customer requirements and past sales figures. This will ensure that you don’t expect more money to come in than will realistically come in and you can adequately plan your cash flows. Make sure you also track your sales to make sure that you are in track to meet your sales targets. If your sales aren’t as high as you are expecting you will be able to cut expenses or borrow money as required.

  3. Accurately Track Your Expenses
    Each month you need to compare what you have projected your expenses to be with what your expenses actually were. This will help you identify areas where your expenses are too high and need to be reduced or areas where further cash is needed so take it into account for the next month.

  4. Solicit Professional Advice
    If you are a novice when it comes to financial matters or just need assurance that you are on the right track, seek the advice from a financial adviser such as an accountant. The help of a good accountant can make sure that your projections and management of your ventures cash flow are on track to ensure business growth and success.

© 2005 StartRunGrow

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