Approximately 21.5% of businesses will fail within their first year. By their fifth year in business, that statistic jumps to 50% of businesses.
Running a profitable business takes a lot of work, dedication, and knowledge. To avoid making your small business a statistic, you need to know how to manage the money that enters your business.
In this guide, you’ll learn about business cash flow and ways to safeguard your business from financial issues.
What is Business Cash Flow?
Cash flow refers to the amount of money being exchanged. Thus, business cash flow refers to the money leaving or entering a business.
Money that enters a business is referred to as “inflow,” and is usually gained through the sale of products or property. Money that exits a business is referred to as “outflows,” and is usually a combination of operating expenses, overhead, and losses.
Prioritize Cash Flow Over Profit
Profit is different from cash flow because profit is a result of subtracting outflows from inflows. Cash flow, however, refers to these two terms on their own. This difference is important, especially in identifying businesses that have high cash flow but low profits.
Since cash flow represents the amount of money going through a small business, it’s no surprise that having more cash flow might entail having more connections, sales, and traffic pages. Profit can then be made by lowing outflows over time.
Track Your Income & Expenses
It’s often overstated, but tracking your income and expenses on a daily will help you in managing your cash flow. It will also give you an accurate representation of business cash flow on a daily basis.
Here are some ways to track income and expenses:
- Keep any receipts in a nearby, easy-to-reach storage (preferably online)
- Use a service like https://bentoforbusiness.com/ to manage day-to-day expenses and the tracking of cash flow
- Ensure that all inflow transactions are noted using your POS (point-of-sale) system
- Avoid spending sums of cash outside of a monitored system
Keep a Cash Reserve
Small business cash flow can often be nerve-racking. The inflow of money one day might be ample, but the next day could bring the rain of many expenses. It’s only the nature of small business.
Just as people keep emergency funds, businesses should keep emergency funds too. This helps for the worst situations, and days when it seems like there’s no inflow at all.
Budget, Budgets, and Budgeting
Running a profitable business requires a good budget. Budgets ensure that businesses stick to what they can only expend while allowing for growth. While you certainly won’t be able to predict day-to-day cash flow, you’ll be able to predict cash flow on an annual basis.
If possible, keep multiple budgets in mind to prepare for every situation. Travel budgets, weekly budgets, and advertising budgets are only a few examples of budgets you can make.
Stick to your budget by absolutely ensuring that nothing is overspent. Any remainders should roll into the next week’s budget or be placed into cash reserves.
Simple Cash Flow
Managing cash flow is really about sticking to the basics and embracing new technology. If you keep a strong, open mind, managing business cash flow will come easy to you.
If you enjoyed reading these tips, be sure to check out other articles in our business category.