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4 Ways Small Businesses Can Keep Their Cashflow Healthy

Cashflow is important for the survival and growth of your business – cash must flow because money is the lifeblood of business. Cashflow in business refers to business liquidity in expressing how money is transferred in and out of a business. A positive flow of cash helps you to meet the financial obligations of your business such as operating expenses, taxes, and reinvestments. Negative cashflow makes it hard to meet business expenses and the firm might be on the path to insolvency. This piece provides four insights on how you can keep your cash flow healthy.





1. Know your cash flow patterns


Every business has its own unique pattern of sales cycle and the sales cycle in turn influences how cash flows in your business. Some businesses like retailers make daily sales; others make weekly, monthly, quarter, or annual sales (think Enterprise software).You need to ensure that your business budget is in tandem with your sales cycle so that you don't need to make big expenses at a time when your sales are generally low. When forecasting/estimating your revenue, you also need to account for the special payment terms such as discounts that you've given to some customers. You'll also need to account for costs associated with getting payments such as merchant transaction and processing costs.


2. Develop an effective invoicing system


Effective invoicing goes beyond sending out invoices to your clients, you invoice might be ignored or even end up in spam. If your clients are not paying up in good time, you have the power to stop cycle and to enable prompt and full payments. You can find professional invoicing software that will help you send out invoices and reminders automatically. Whether you are doing manual or automated invoicing, it is also in your best interests to send out invoices on a timely basis immediately a task or job is done in milestones or completely.

Pro Tip: Ensure that you send your invoice to the right recipient. Find out if your client has a dedicated accounting department in charge of payments to ensure prompt payments.


3. Pay attention to economic news and trends


Events in the news; economic, political, social, global events could affect you cash flow and put you in a cash crunch. For instance, sudden changes in the government regulations and policies might foist an unexpected expense on your business finances. More so, geopolitical uncertainties might make it hard for your international clients to send out payments even when you are willing to pay you. Mark Steele, a market analyst at Saxon Trade notes that "accessing regular market-specific news and updates can help small businesses take proactive decisions to protect their cash flow."


4. Have a backup plan for finances


It is important to have cash reserves for your business or something akin to an emergency savings fund in personal finances. Your cash reserve should help you cover operating expenses such as payroll and basic supplies even if some of your payments are delayed by a few weeks or months. The cash reserves can also come in handy during emergencies when equipment breaks down. You should also strive to have a decent working relationship with business lenders such as banks and credit unions. A working relationship with lenders who have an understanding of your creditworthiness could make it easier for them provide you with funding when you apply for a loan.

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