4 Ways to Master Your Cash Flow
Owning a small business is not for the feint of heart. Every day business owners wear multiple hats and the majority of us think about our business almost constantly.
One of the biggest topics on the minds of most business owners is Cash Flow.
The availability of liquid funds plays a key role in the daily operations of any business. Payroll, taxes, and in many cases professional fees – all require cash on hand. While there are times utilizing credit is necessary, running a business completely on credit places the business in a precarious place.
The path to financial health of a business follows the flow of your cash. Having funds on hand for unexpected bumpy roads (think March 2020) provides the business owner with breathing room to make proactive, clear-headed decisions.
Want to learn to be less reactive in your finances? The first step is getting your cash flow under control.
#1: Change your mind set on spending
It’s OK to have expenses. The cost of doing business is legitimate. But often we find that the classification of expenses is where the hiccups are.
Ensuring proper classification of everyday business expenditures means that your reporting will more accurately reflect where your money is going. While you generally do not need to be extremely granular, proper classification means you will be able to easily spot where you may be heading towards over budget or better able to identify areas that could be streamlined.
Some examples would be:
· A paper heavy business should break out paper purchases from other “office supplies” to be able to quickly review spending and make it easier to compare pricing among potential vendors.
· Advertise a lot? Breaking down the type of advertising may help a business better identify which platform is most cost efficient and potentially which is providing the best lead source.
Don’t be afraid of expenses. Just be sure you are handling them correctly so that you can quickly and accurately determine which ones provide value and which ones are able to be reconsidered.
#2: Cut Unnecessary Expenses
One of the easiest ways to save money is to review your app subscriptions.
Now that you classified things correctly, look at where you are spending. I can almost guarantee that most of our followers are paying for more than they truly use. This is something we do regularly around here, and we highly recommend it.
Just like constantly grabbing coffee while out - It’s easy to fall into the trap of spending a few dollars here, a few there on apps trap. Moderation is OK, but sometimes you continue to pay for a subscription long after it has worn out its usefulness.
So double check those subscriptions and cancel any that you aren’t using!!
#3: Create (& Stick to) a Budget
Now that you have a true read on your expenses, it’s time to budget!
Utilize the built-in budgeting feature in your accounting software (if available) or download a template from excel.
Taking the time to review your expenses and truly budget will make you significantly more mindful when planning in the future. Many of our clients are shocked to see where their money is going and often shift spending habits by the simple act of creating a budget.
If 2020 showed small businesses anything, it is that knowing the financial health of your business at all times is extremely important. Tracking expenses month to month and highlighting when over for the month and - equally important - when on track to go over budget for the year, will provide a business owner with the ability to make more informed decisions any time of the year.
It doesn’t have to be complicated; it just needs to be clear AND you need to be consistent.
#4: Sweep money to another account
One of our favorite tricks is good old fashioned “out of sight out of mind”. Why? Because it works.
Set up a separate checking account - preferably at a different bank than your main operating account. Every month, sweep a percentage of your profit to the new account and let it build. Before you know it, you will have the all too important, 6 Month Expense Cushion.
Don’t feel the pressure to commit to a dollar amount. For many businesses, net profit rolls up and down. Commit to a percentage. Sweep that every month into the new account. Step back and watch your cash on hand grow.
Don’t believe us? We challenge you to try.