The eight commandments of cash flow management | SupportBiz

Finance Forum

The eight commandments of cash flow management

Effective cash flow management is essential to keep your business running, and to free yourself from monetary worries. Good management of cash flow, however, is not an easy task.

Here are some tips for you, as a small business owner, to do this job the best way possible.

Consider present cash balance

It is important that you keep track of the cash balance that you have on hand now. You should know the exact figure of cash that you possess at any point of time, after considering all expenses paid and income received till that point in time.

Separate cash and bank balance

Cash and bank balance are two separate things. It is necessary that you keep track of both your cash and bank balance at all points of time.

Record accurately

Accurately record each rupee that you receive every day in cash, and each rupee that goes out of your business. Only then will you be able to get an accurate figure of the cash balance with you at any point of time. Inaccurate records will lead to the calculation of an inaccurate cash balance, leading to problems with cash flow management.

Study projections

In today’s volatile business environment, it is essential that you prepare cash flow projections six months ahead. Study carefully the cash balance you will have on hand for the next six months, and take business decisions accordingly.

Never run out

Running out of cash flow spells doom for a business. Ensure that you are always up-to-date with the cash on hand in your business, and that you never run out of hard cash.

Consider expert help

If you are too pressed for time to maintain the accounts for your business yourself, consider hiring an expert in-house accountant to keep track of the cash flow on a continuous basis.

You might also want to consider taking expert help, from business coaches and mentors, in the maintaining of adequate cash flow.

Anticipate problems

Cash flow problems do not just happen; they happen gradually, over a period of time. If you have been keeping track of your cash flow constantly, and studying your projections for the next few months regularly, you will be able to anticipate such problems well in advance.

If, at some point of time, you fear running out of cash, arrange for it immediately – either from your liquid assets or other sources.

Understand your account receivables and payables

Take the time to thoroughly study your account receivables and payables. Determine the exact time when your account receivables will be converted into cash, and when your account payables will translate into an outflow of cash from your business. It is crucial that you do not treat account receivables and payables as cash inflows and cash outflows respectively till they actually translate into cash.