Why cash flow is so important for small businesses
Why is Cash Flow so important to small businesses?
Cash flow allows a small business to pay staff, cover expenses, purchase stock and improve the business.
If a business doesn’t have a good understanding of cash flow it may struggle to thrive or even stay open. Without cash in the business it may not be able to purchase stock and without stock there is nothing to sell and the business wont be able to stay open.
With cash flow being so important, a small business must keep good records of what is expected to be coming in and going out of the business and make sure there is enough money to cover these costs before the cash is used for personal pay. A business may come across unexpected costs so making sure there are always funds available to cover these is a must.
Some things to keep in mind when planning your cash flow…
Bill, Bill, Bill…
As a small business it is important to bill your customers right away, do not wait to send out an invoice. Make sure you have strict invoicing terms and stick to them, do not let your credit control slip by not chasing up late payers. Send out statements when your invoices are due, follow up a week later if payment has not been received, this can be in the form of an email or a phone call.
Make sure you allow for late payers in your cash flow and accommodate this by leaving enough cash to cover any bills not paid.
Don’t Purchase unnecessary items
Make sure you factor large purchases into your cash flow such as computers and new software. Does the business really need them? Will they generate more income? Are they beneficial to the business?
A Wilson Accounting