Cash flow is the life support of every small the business.  It is the process that keeps you liquid in operating expenses, investments, and maintaining a financial style. You have your cash flow to manage your cash. Let's learn the best ways to do it for your  small business: a compact and practical guide.

Basic Understanding of Cash Flow

Money coming into and going out of your business is known to as cash flow.

Cash Flow from Operating Activities: Let's imagine sales are your main line of  business.

Cash Flow from Financing Activities: The influx of funding from loans or investors.

Make a forecast of your cash flow.

You may better prepare for your company's financial future by using a cash flow prediction. It determines how much cash to come in and go out in the success

periods. With this, you can foresee shortfalls, which can be subjected to your consideration.

•    List down the cash revenues you expect from your sales and other sources.

•    Estimate how much cash you can expect from all the expenses that you will be having in the following periods, from rent to salaries and utilities.

•    Net cash flow approximation by subtracting your expenses from revenue

Frequent update of this estimate keeps you one step ahead of the changing circumstances while planning for your future requirements.

Collect Your Receivables Quick

•    Getting payables sooner increases your cash flow. Here's how to speed up customer payments:

•    Offer Early Payment Discounts

•    Ask them to pay earlier by giving small discounts.

•    Send Invoices Timely

Manage Payables Wisely

Even money owed to you needs to be managed. Here are strategies for managing outgoing payments:

Negotiate Payment Terms: Engage with your vendors to stretch payables so that cash is kept by the business.

Critical Payments: Pay first the critical items as rent, payroll and key suppliers.

Avoid Late Fees: Stay away from such unnecessary fees and interest by making timely payments.

This would thus enable you to spend your cash over time without jeopardizing the business or running risks of penalties.

Controlling Expenses

Regularly check your company's budget to identify areas where you can cut costs

without compromise the quality of your service. Some tips on cutting costs are below:

Cancel Unused Subscriptions: Take time periodically to review your subscriptions and cancel out the ones that are not serving your business.

Outsource tasks: There is no need for hiring full time when the tasks are not crucial to core business activities.

Track variable costs: Track variable costs in terms of materials. This will always help you make the necessary adjustments in peacetime.

All of these are free to use because controlling expenses frees up cash which can be invested into more important areas.

Manage Emergency Funds

Any business needs to have a financial cushion prepared to face the unexpected   breakdown in equipment or an economic downturn, so save three to six months of working capital to use on emergencies.

Use Financing Prudently

It can actually bring in sufficient capital to bridge cash flow discrepancies, but be careful; here are a few alternatives:

Line of Credit: Flexible when needed and can be repaid as and when cash flows come through.

Business Loans: Use this loan when you are absolutely sure that the loan repayment will not interfere with cash flow.

All financing should only be to the extent necessary. This will help you from overstretching the financial resources of your company.

Monitor Cash Flow Frequently

The frequent monitoring of your cash flow ensures that you always know the financial health of your business.

Use Software Tools: Use tools such as QuickBooks or Freshlook’s to track your cash flow and see some trends coming in.

Plan for Seasonal Changes: If your business has ups and downs, prepare for that at peak periods to save up for the slow times.

Monitoring your cash flow keeps you in touch with what you need to do and prevents surprises.

Inventory Management Optimization

If your company sells physical products, then managing inventory is the most important cash flow management.

Overstocking uses up cash and too little stock may lead to lost sales.

Track Sales Cycles: Ensure that the inventory is sufficient for demand to avoid buying in excess.

Just-in-Time (JIT) Inventory: Explore the JIT systems, wherein goods arrive just in  time to be sold to minimize storage costs.

Good inventory management ensures a ready flow of cash while wasting as little resource as possible.

Maintain Different Business and Personal Accounts

Keep separate business and personal accounts make it simple to track the

movement of money in the company and helps to avoid confusion and errors. So, keep all your business transactions in a separate business bank account.

Conclusion:

Cash flow management allows you to handle small business with success. Start with cash flow forecasting, accelerating or improving receivables, managing payables,

and controlling expenses. In this way, you maintain the financial strength of your company.