Most small business owners are focused on profits. If your business is generating a profit, it must be doing well, right? But profits are only part of the picture. What really matters to the success of your small business is cash flow — that is, how much money is moving into and out of your business at any given time. A successful business has positive cash flow most of the time. How can you achieve this? Check out these cash flow management best practices from Almost Magical Marketing!
Understand Why Cash Flow Matters
Your business profits can lull you into a false sense of security. It’s common for business owners to find that they made a profit but still have very little cash. This can happen when you invest in long-term assets, restock your inventory, repay loans, or otherwise tie up your working capital. A consistent, positive cash flow ensures you have the cash to pay your bills, grow your business, and avoid taking on debt.
Boost Your Brand
Your brand is how you sell yourself, and if you could use a boost, remember that marketing matters. The more interest you generate, the more customers you’ll have. Obviously, marketing costs money, so if you’re trying to maintain a healthy cash flow, find a suitable balance for what’s worth paying for and what you can handle yourself.
For example, if your logo needs a facelift, you can easily do this yourself. Adobe Spark’s free online logo maker gives novice designers all the necessary tools to craft custom logos that look professionally made. On the other hand, when it comes to your marketing strategy, it pays to work with experts like Almost Magical Marketing. They can help you build your digital marketing campaign, and even assist with everything from Facebook ads to Messenger marketing to Social Media management.
Keep Good Financial Records
Solid bookkeeping is the hallmark of healthy cash flow. Monitoring your financial performance will help you anticipate issues and plan ahead so you can maintain positive cash flow even during periods when business is slow. Staying on top of accounting will also help you track upcoming expenses, so you always have cash on hand to pay employees, utility companies, vendors, and your landlord. Good bookkeeping will also ensure you get paid promptly! The faster you can secure payments from customers and clients, the more cash you will have to meet your financial obligations.
Separating your business and personal accounts is key here. If all of your finances are muddled together, it’s near-impossible to get an accurate picture of your business cash flow. If you haven’t already, open a small business bank account to keep your finances properly organized. To streamline your accounting system, look for a bank account that will integrate with your payroll and invoicing software, as well as one that offers free instant deposits, high-yield interest, and other welcome perks. Bear in mind that opening a bank account will require documentation about your business entity, and if you’re in a sole proprietorship, now could be the time to switch to an LLC through a formation service.
Don’t Rely on Credit
Paying interest on lines of credit will take a lot of cash out of your business. While you may need to take on some debt to get your business started, try to pay it off as soon as possible. Without interest payments, you will have more cash available each month to cover your expenses without running into the red. As soon as you pay off your debt, build up a cash reserve so you can avoid taking on debt to bridge those cash flow gaps.
If you need to make cash quickly, you may be tempted to offer discounts on your products. However, The Retail Doctor explains that this is a bad idea for several reasons. Discounting reduces the perceived value of your business, demonstrates a lack of confidence in your products or services, and causes your customers to expect discounts in the future. Instead, look for ways to increase the value you provide to your loyal customers. By encouraging return business organically, you should be able to improve your cash flow without offering discounts.
Grow Your Business Slowly
It’s easy to get carried away when your business starts picking up steam, but growing your business slowly is the key to maintaining healthy cash flow. Growing too fast can easily leave you cash-starved. For example, if you need to increase the size of your inventory or acquire new equipment, it could take a couple of months to land enough sales to pay off these investments. Try to grow your business strategically, and ensure you will have the cash you need before your bills are due.
Don’t let cash flow issues derail your business. By monitoring your cash flow and being proactive about correcting potential problems, you will be able to keep more cash available for buying materials, paying employees, and investing in the growth of your business.
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Contributor: Amy Collett – BizWell.org
Almost Magical Marketing is a full suite digital marketing agency specializing in Chatbots, Facebook Advertising, Social Media Management, Sales Consulting, Franchise Marketing, and Branding. Our team of almost magical llamas brings a wealth of experience from multiple industries. 🦙✨
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