The Basics of Cash Flow Management

Cash flow management is a crucial aspect of your business’ longevity. Failure to implement the proper system of money management could have grave consequences. While the task itself may seem daunting, having an organized and well thought out plan of attack can make it easier to keep track of cash flow, and therefore help increase your company’s profits.

The first step in the management of cash flow is to know your breakeven point. By determining how much revenue needs to come in for you to be profitable, you’ll be able to project your future cash flow. It will also give you a goal to strive for, and perhaps reach it in a shorter amount of time than expected.

Do not be blindsided by the need to be profitable. There are more factors to cash flow than your profit and loss statement. You must pay special attention to accounts receivable, inventory, accounts payable, capital expenditures and debt service. These are all major elements of cash flow.

Another aspect of managing your cash flow is maintaining a savings account. The unpredictability of the business world means that things can change at the drop of a hat. If and when your business takes an unforeseen hit, having some cash reserves can be a lifesaver. A savings account can make it easier to get through any unintended shortfalls with your business still intact.

Creating a workbook to keep track of your cash flow is essential. Dividing your spreadsheet into several sub-categories will make it easier to keep track of cash flow. One tab could include startup costs or one-time expenses; another should be monthly fixed and variable expenses. It’s important to have a projection of monthly sales to determine potential feasibility.

Act quickly when it comes to invoicing your clients. As soon as you’ve completed the work, prepare the invoice and give it to your clients either in person or via e-mail. Consider offering early payment discounts to get the money in faster.

If you are experiencing some financial strains, it is important that you are upfront with your bank. Treat your bank as you would one of your clients. Building a good relationship could be very useful in the future, as banks can grant you services such as overdrafts or credit in the event of financial hardship.

If you are in need of assistance managing cash flow or are interested in any other services we offer at Pioneer, stop into a branch near you. Call our Customer Care Center to speak with a Business Banking Officer at 518.730.3000 Monday-Friday: 8 a.m.-7 p.m. and Saturday: 8:30 a.m.-1:30 p.m.

For more information on managing cash flow, check out this article from QuickBooks.