Cash flow management | Future proof your finances

You started your business because you love it — to provide a product or service, and serve your customers. The best way to continue your passion is by turning a profit year after year. 

One reason businesses fail is poor money management. Even with great people, standout products, and increasing sales, poor financial management can wreak havoc.  

Effectively managing your finances — understanding your cash flow — helps you stabilize your business and ensure you have long-term capacity for growth. 

Why your bank balance isn't enough

Many small business owners manage operations by looking at the balance in their checking account. This is too broad a measurement to provide actionable information. It can tell you if you'll make payroll on Friday, but it won't tell you what's working in your business — and what’s possible on your financial horizon. 

Monitoring cash flow (money coming in and going out of your business) can seem straightforward in a smaller enterprise. You need to have a single source for your finances. Where all transactions are recorded, sales revenue is accounted for, and your cash and commitments are clear, so you can see how your business is really performing.  

Cash flow management 

Put simply, cash flow is the total amount of money being transferred into and out of your business. It’s your invoices due and your bills payable, purchases and investments. Effective management of your cash flow can help you the capacity to grow your business.  

A cash flow management tool will give you a clear view of your financial position. Whether you’re navigating uncertainty or planning to grow your business, knowing your cash flow position will help you make quick, sharp decisions.  

Future proofing your financial position

Even when times are good — customers are knocking at your door, and sales are up — successful businesses don't rest on their laurels. While it's easy to feel that you've finally "made it", failure to prepare is preparing to fail. 

You need to be ready if a competitor comes after your share of the market or external events impact your business — for example, a global pandemic. Having a business continuity plan in place will help you offset some of these events.  

There are, of course, some simple actions you can take to future proof your business against the unknown: 

Aim for growth and expansion — is there a possibility to grow your current business? If you have a brick-and-mortar store, is there an opportunity to sell online in tandem? If you're a restaurant or café, can you facilitate takeaways?  

Be prepared to innovate — consider starting with data and research. Analyze your customers and your market to see where you can innovate or improve your product and services.  

Bolster sales — set up your pipeline of customers as far into the future as possible. Examine who you're currently reaching and how. Is there room for improvement? Perhaps you can attract another segment of customers by diversifying your offering. Consider how you market your brand. Examine your acquisition strategy; how can it be improved? 

Identify and mitigate risks — while you can't predict the future, you can take steps to prepare yourself. Audit your business. What are the risks or potential points of failure? Consider people, data and security, compliance, business process, etc. What can you do to mitigate these potential risks? 

Cutting costs for long-perm prosperity  

When you've invested so much time, money, and self in a business, it can be difficult to see clearly when times are challenging. When you find your business struggling, it's easy to make rash, emotional decisions that aren't based on good information.  

Often businesses going through a rough patch start cutting costs, but you need to assess the long-term impact. For example, if you cut down your marketing budget, it may heavily impact sales and feed into a negative spiral.  

To provide yourself with some bandwidth, consider the following:  

Analyze your situation — before running headlong into firefighting mode, evaluate your current situation. Get a strong understanding of where you are currently, your short-term outlook, and what's brought you to this point. Then sit down and create your strategy. 

Cut the fat — list your expenses and eliminate what's not serving your business. Essentially, you're buying time to solve your problem. For example, can you consider changing suppliers to cut down costs? 

Survey your customers — speaking to your customers to understand their needs better will help you to ensure your business is delivering. A customer survey may flag areas that are performing poorly and tell you why — helping you make an informed decision to boost your business.  

Contact your bank — if you find yourself in need of financial support, or struggling to keep up with payments, speak to your bank. They are there to support you.  

Money matters

Money is the lifeblood of your business. To meet your business and life goals, you must keep track of where money is coming from and where it is going. The only way to continue bringing your business, your product, and your genius to the market is to turn a profit year after year. Many factors make a business great, but professional investors will tell you that cash flow management is paramount.