Much like needing a paddle when traveling upstream, mastering the art of cash flow management is essential to keep your business from washing uncontrollably downstream. The dreaded gap between paying off expenses and waiting for payments can make any level-head bead with sweat. Luckily, if you follow these easy steps, the panic button will seem smaller and smaller each month.
Forecast Better Than the Weather Man
To see dark clouds on the horizon, you’ll need to map out upcoming expenses and predicted incomes ideally for the next three months, but three weeks or even three days if that’s where you’re at. This helps to keep a finger on your financial pulse and quickly identifying potential problems early on. Part of forecasting also means staggering your payments. Align high-priority bills with early payments and work down the scale from there. Just don’t wait until the end of the month to write all your checks at once. One crucial rule of thumb…don’t make a payment until the cash is in the bank. Many mistakes are made in crunch time by assuming a deposit will be in timely and making the payment out before it arrives.
Don’t Wait Until a Crash to Ask about Airbags
Talk with your lender about options for future lines of credit BEFORE you encounter an emergency. Establishing a potential for future back-up plans reassures your bank that you’re planning ahead, which makes a great case for why they should lend when the moment arrives. Try to plan for about two months of back up, and hopefully you’ll never need to use all of it.
Give Notice Sooner Than Later
No one likes to be a nag, but waiting until day 80 to remind a customer about a 90-day payment creates an unpleasant experience for both you and your customer. Establishing a payment reminder not only helps your cash flow, it also identifies any problems early on. To really motivate timely payments, you can always offer discounts on early pay-offs. (This could also be an option with your own suppliers and lenders that would be worth looking into.)
Get the Whole Gang on Board
Taking complete responsibility for all the finances can be a heavy burden to carry and can lead to more opportunities to drop the ball. Get everyone on the same page and hold each team accountable for their contribution to the process. Your employees may be able to identify a potential risk sooner than you can, since they’re working more closely with day-to-day tasks.