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Best Practices for Managing Cash Flow


One of the most challenging aspects of running a small business is being responsible for your own income. Follow these tips for managing cash flow.


Gone are the days of the steady pay cheque and its bi-weekly deposits into your bank account. Instead, it’s up to you to make the right decisions with payments as they come in. Easy to do when you’ve got a steady stream of invoices flowing out; not so much when you hit a slow patch.


Meanwhile, you’ve also got to be mindful of income’s close cousin—expenses. Business and personal commitments (rent/mortgage, phone, transportation, food, etc.) do not stop just because you’re in a low-volume slump.


In the accounting world, all of this is called cash flow: “The amount of cash moving into (income) and out of (expenses) a business.” Conquering it requires discipline and strategy.


Below is a simple guide to help you manage your cashflow:


Track Your Income and Expenses

It might seem simple, but managing cash flow begins with keeping an eye on your accounting—and not just at tax time. All the time. When you have a clear line of sight to what you’re bringing in and what you’re spending, you can make real-time changes to better balance the two.

Cloud accounting software will organize the information for you and provide an at-a-glance view of what’s going out and what’s coming in. The trick is to send invoices promptly and input expenses regularly.


Create a Profit & Loss Report

Want to understand your cash flow and know how your business is performing over the course of a year or a quarter? Of course you do! When you analyse your profit and loss regularly, you can do things like look for ways to minimize expenses and identify what times of the year are the slowest so you know when to amp up your sales efforts to even things out.

A basic profit & loss report tallies your income and expenses over a given amount of time, i.e. monthly, quarterly or annually. If at the end of the chosen period, you’ve spent more than you’ve made, you know you’ll need to make changes—and where.


Want to understand your cash flow and know how your business is performing over the course of a year or a quarter? Of course you do! When you analyze your profit and loss regularly, you can do things like look for ways to minimize expenses and identify what times of the year are the slowest so you know when to amp up your sales efforts to even things out.


Want to understand your cash flow and know how your business is performing over the course of a year or a quarter? Of course you do! When you analyse your profit and loss regularly, you can do things like look for ways to minimize expenses and identify what times of the year are the slowest so you know when to amp up your sales efforts to even things out.


Control Your Income and Expenses

When you understand where you could stand to improve—whether that’s working on increasing your income, cutting back on expenses or both—you can make a big-picture plan for the long-term success of your business.

That might include activities like:


Income-Boosting


Targeting higher-value clients

Taking on more work

Doing more marketing

Raising your rates

Upselling existing clients

Developing an off-season niche


Expense-Slashing


Making cutbacks on phone plans, transportation, entertainment and other expenses

Avoiding credit and loans

Buying gently used equipment

Renegotiating lending terms

Creating and sticking to a business budget

Working from home, the library or other free places where you’re not tempted to spend money

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