Most entrepreneurs don’t start their business with an expertise in finance. As a result, they make mistakes. Sometimes those simple mistakes, such as confusing their bank balance with their cash, can jeopardize their business.
Cash flow is defined as the total amount of money transferred in and out of a business. To project your cash flow, it is crucial to have an accounting system that keeps track. This system should account for:
- Receivables – You probably haven’t been paid for everything you’ve invoiced, and many of these invoices will most likely be paid late. You can’t spend the money until you have it!
- Payables – Also known as bills that need to be paid on time. They also include outstanding checks that have not cleared yet, loan payments and other outstanding items.
If your receivables are still higher than your payables, you should have a positive cash flow, but sometimes, the timing is off. Here are a few strategies to improve when your money comes in and when it goes out, a.k.a., your cash flow.
- For services companies, ask clients to make a deposit or pay up front.
- Offer incentives, such as discounts, additional products or services, for clients who pay their bills quickly.
- Invoice on time and follow up if you don’t get paid right away.
- Use E-invoicing with QuickBooks to allow customers to pay online.
- Use the creditor payment terms to your advantage or ask for better terms.
- Create good relationships, should you have a shortfall and need to negotiate another term.
- Build a history with the vendor. The longer you have done business with them the more likely to get wiggle room.
Staying on top of cash flow can be the difference between a company that exists for the long haul and one that shuts its doors.