Managing your company’s cash flow is a key part of business. No matter how great your business model is, how profitable you are, or how many investors support your company, your business needs cash flow to exist. Because of the lag between the time you pay your employees and you collect money from your clients and pay other vendors and suppliers, you must properly plan your income and spending in order to build your company.
Here are three steps you can take to better manage your cash flow.
Objectively Estimate Future Sales Volumes
Although you’re relentlessly optimistic as an entrepreneur, you need to be realistic when estimating future sales volumes. Not every prospect will become a client. Although your sales volumes may increase during the holidays or other busy seasons, they probably will not double. To maintain objectivity, use quantitative forecasting methods based on actual past revenue data from your business and others in your industry. Create a basis for tracking trends and predicting future sales. Along with objective intuition, this information will help you create more realistic future sales projections.
Actively Pursue Past-Due Invoices
Regularly contact clients with overdue invoices. Show your customers they’ll hear from you right away when a payment is overdue. Include on your invoices clear penalties and collections policies for late payments. This may involve a 5% late penalty after five days and/or work stoppage after 30 days past due. Create an internal timeline of procedures for when to send the initial invoice, when to mail payment reminders, and when to make collections calls or cut off services if invoices remain unpaid. Here’s a quick resource on how to set up an effective collections process.
Keep Cash in Reserve
Always have cash on hand. No matter what you do to maintain steady cash flow, things may happen that interrupt the amount of money coming in. Having a cushion of savings can minimize the impact of cash flow disruption. Keep at least two months’ operating expenses available to protect your business.
Secure Funding from Madison Resources
To shore up gaps in your cash flow, turn to Madison Resources. We provide the capital you need to improve your cash flow. Call us to learn more today.