As a business owner or founder, you tend to focus on the big picture of where you are taking your business and on the day-to-day decisions that need to be made. Then, once everything that needs to be done is completed, you look at your financial statements.
If everything went well, you’d be pleasantly surprised. But it’s also possible that you’d receive an unpleasant surprise that your financials didn’t reflect the hard work you and your team put into it.
You are not alone. This happens to many business owners and founders, and the reason is that most tend to believe that if you put in the work, the financial upside will come.
The problem with this approach is that it often leaves financial gaps through which your profits fall. To avoid this, a different approach is needed. One that focuses on cash flow and makes it a priority.
This article will be a guide to make sure your business grows steadily and never comes across a cash crunch or some other financial woe.
Make improving your cash flow a priority
One of the main reasons why business owners and founders have a hard time improving their cash flow is because they don’t make it a priority. Understandably, it’s difficult to add another task to the never-ending to-do list that you have to manage.
However, cash flow needs to receive special attention since, if mismanaged, it can have dire consequences.
Here are three suggestions to make keeping track of cash flow more manageable:
- Share your cash flow goals with key team members: Make the plan visible and share it with others. It’s the first step to making it happen. Often financial goals aren’t shared with the team, and you could be missing out on their input and the value they can add to help you reach financial goals.
- Share how your cash flow goals impact the big picture: If reviewing financial metrics is new to your team, finding ways to help them relate can help them understand the importance of these goals.
- Make your cash flow goals quantifiable: Add metrics to your financial goals so that you can know whether you’re making progress or if you need to adjust your action plan.
Keep track of your cash flow
One of the most dangerous things that can happen to your business is being surprised by a cash shortage. The problem isn’t so much the shortage of cash, but rather the fact that it caught you by surprise. There are many ways to manage and mitigate the impact of reduced cash flow, but you need to know one is coming to be able to act.
- Make it a habit to check your cash flow statement: Make sure that scanning your cash flow statements is something that you do periodically and as frequently as possible.
- Automate your reporting: If getting your cash flow statement is proving troublesome, find ways to automate these reports. Most accounting software suites have an option to automate reports.
- Find the root cause of your cash flow problems: It’s essential to know what scenarios are the ones that put your cash flow at risk. The better you are at recognizing what causes the pain, the better you’ll manage the situation.
Create cash-flow forecasts
Financial forecasts are one of the most valuable tools you have at your disposal to keep a healthy cash flow. That’s because projections can give you a detailed insight into what would happen if everything in your operations remains consistent. This means that you get more time to create an action plan, and your decision-making process is more efficient.
Here are three ways for you to make the most out of your cash flow forecasts:
- Create multiple scenarios: Having multiple strategies can help you plan for different situations. You can never be too prepared, so understanding the implication of other methods is critical.
- Forecast your expenses: Sometimes predicting revenue can be difficult due to the variability. This is why forecasting expenses can be more accurate and equally as helpful.
- Reassess periodically: Forecasts should be reviewed regularly as new data becomes available. Don’t just run a forecast and leave it shelved.
Be proactive in managing your cash flow
There are many options for you to manage a cash flow shortage in your business. You can push back some payments if necessary, pause non-essential spending, negotiate payment terms, and so on. The point is, you have options. But if you wait too long, these options can cease to be available. That’s why being proactive when managing your cash flow is key to having a positive outcome.
- Have a plan in place: Whether you have to manage a crisis or make the most out of an extra influx of cash, make sure that you plan on what to do with the money. Remember that failing to plan is planning to fail.
- Focus on prevention: Make sure that you have various ways that allow you to prevent falling into a cash crunch. When it comes to cash flow, an ounce of prevention is worth more than a pound of cure. Since the treatment to fix a cash flow problem can be expensive.
- Remain accountable with your goals: One of the best ways to make sure that your business is financially healthy is to stay responsible with your cash flow goals. This may come at the expense of slower growth, but it may be the best decision for your long-term growth.
Get help from professionals that can help you stay on track
Keeping a constant eye on your business’s financial health is critical, but it can also absorb a lot of your bandwidth. This is why having a trusted advisor like Adian can help you take your cash flow goals and make sure you reach them.Get in touch to schedule a free consultation with one of our financial experts so we can start finding the best way to keep your cash flow healthy.