When it comes to owning a business, how well it is running does not always depend on a year-end profit and loss statement. For even if you finish the year making a profit (and even assuming that you paid yourself what you wanted to be paid), there could have been many difficult times throughout the year, and those are very likely attached to cash flow.
Trust me, I do tax returns, so I fully understand the ebb and flow of how much cash is coming into a business.
I wanted to take this week to go over some issues concerning this subject. Over last tax season, I saw many businesses who were just breaking even, but with some adjustments or a change in mindset, improvements could start to be made.
First, if you are in a business like mine with unavoidable seasonal swings, be aware of this. In that situation, you cannot run your business as if every month is going to be like the best month, and you cannot run your business as if every month is going to be like the worst month. Instead, you must have control enough over your financial numbers to know when and how much you can spend – and in a way that will help your business grow.
A small corollary to this is that cash reserves are necessary. Sure, as a business you probably have access to some sort of credit, but the more you can access your own money that doesn’t require being paid back with interest, the sooner you get back to your starting position.
Although these may feel like smaller moves, being mindful of your receivables and payables can help ease cash flow issues. For the payables, putting off paying a bill can give you a slight cushion. Now I am not saying you should push anything past the due date, for this is likely to lead to other charges and only hurt the totals we are trying to improve. But it is possible that waiting two weeks until the bill’s due date could be beneficial.
On the other side, efforts must be made to see that your customers pay you in a timely manner. You may want to think about instituting some sort of reminder system if you don’t have one, or possibly even attach your own late fees to their bills if payment is not coming in on time. It is also possible to offer incentives for paying early.
Overall, it is likely that no one action is going to be enough to solve serious cash flow issues. And it is impossible to get a firm grasp on it as a whole without looking deeper into the actual numbers of your business. By being proactive, though, I am certain there are things you can be doing to improve the situation. If this is something you would be interested in delving into, please let us know. Putting in the time now to make positive changes will make much of your future time feel more positive.
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