How to Manage Your Cash Flow

Cash flow is the lifeblood of your business. What is cash flow? It’s the money coming in and going out of your business. Why is it important? If you don’t keep track of it, you could find yourself short of cash to pay expenses, even if your business appears to be making a profit.

So how do you manage your cash flow? First, learn your cash-flow cycle. It involves invoicing customers, keeping track of inventory sold and on hand, and watching your expenses.

Send invoices as soon as the job is done or a purchase is made, and have a schedule for when payments are due.

If something is not selling, adjust your inventory. Any merchandise just sitting in your store is tying up cash that should be coming back in as revenue, so if something isn’t selling well, mark it down, get rid of it, and put that money back to work.

Second, plan ahead.

Think ahead to what supplies, equipment, or inventory you’ll need to buy, and plan your spending. Buying things as you need them is an easy way to get into trouble.

Consider setting up a business line of credit before you need it. When business is good, you’ll have a better chance of being approved at lower interest rates.

Have an emergency stash of cash. Some experts recommend having enough on hand to cover 6 months of business expenses.

Finally, take advantage of technology. Use accounting software or apps to track your incoming and outgoing expenses to help keep you out of the red.

To keep your business up and running, showing a profit is not enough. You need to have cash on hand for expenses—and managing your cash flow will help you do just that.