Cash flow is the lifeblood of any business of any size, but particularly for the small business operation.

Positive cash flow is when you have more money coming in than is going out, and negative cash flow is the opposite.  Cash flow is not the same as profit.  If you sell a product or service for more than it costs to create it, you are making a profit.  However, you could have other expenses like rent, taxes, or utilities that impact the amount of cash you have to spend. 

Spreadsheet

Start by making a spreadsheet that shows overdue invoices and cash that is used for work in progress.  You can also use this device to see how long it takes from paying your supplier to when you get paid for the product or service.   

Bank Accounts

Especially if you are a start up, open a separate account for your business.  It will be significantly simpler to watch your operation's cash flow and help budget for the next year.  It will also give you documentation of all the transactions for tax returns or to seek outside financing. 

Fixes

If you are in a cash flow crunch or anticipate one, here are some things to consider:

•      Financing – Both long or short term financing may be the answer.  Banks are known to issue line of credit in the form of a credit card for emergencies or to bridge a temporary gap.  Start ups or improvements can benefit from long-term loans and paying it off in increments rather than using cash on hand to buy that new computer or other equipment.

•      Receivables – Invoice promptly.  Don't wait until the end of the month to send out those statements.  Provide the customer with an invoice at the time of delivery or service.  Many services now use electronic payment devices so the customer pays on the spot.  Larger orders can sometimes mean a lag time in payments.  Consider asking for a downpayment and progressive payment options.  Keep track of overdue accounts.  These are easily overlooked. Make it a practice to have your bookkeeper review all open accounts weekly.

•      Payables – Unless there is an incentive like a discount, don't pay until necessary.  Just watch out for late payment fees or getting your supplier annoyed with your payment structure.

•      Inventory – If you have products that are not selling or that you intend to discontinue, consider offering them for sale at a discount.  Price them at least at break even.  The advantage is that you will open up room for those items that are moving quickly or that you can price at a higher rate.

Like the Scouts, be prepared.  Try to avoid having only a single client.  Develop Plans B, C, and D to anticipate a large order cancellation, economic slow downs, or pandemics.  A great source for ideas is the CPAs you use for taxes and other financial matters.  Not only will they be able to offer tax savings ideas, but they probably have a number of good alternatives for your specific business that will help you keep buffer money available and how to create improvements. 

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team