What is the best way to manage cash flow when running an early stage business?
I'm having trouble managing my cash flow. Jobs are coming in but my expenses go out faster than my receivables come in!
Kyle, I strongly encourage you to use cash management forecasting as one of your key management tools. The cash management forecast becomes more useful when you compare, on a regular basis, the estimated cash inflows and outflows with the business’s actual cash performance. However, cash control is incomplete without a vigilant Accounts Receivable collection follow up. You must be very proactive in your overall cash management. This is particularly true for a young or start-up company like yours, with limited financial resources and borrowing power.
A cash management forecast is a projection of actual cash that a business anticipates receiving and paying over a defined time period. It reveals the anticipated cash position at specified times (i.e. each Monday morning) during the forecast period.
Although the forecast may be developed for any given period of time, it is recommended that, as a minimum, you closely monitor the cash situation over a six-week period. This covers a normal monthly cycle plus 15 days.
Each week, you must compare the company’s actual cash performance with the forecast data for that week. Take aggressive steps to collect what you are owed and stretch AP payments to match the rate of cash collected wherever you can, without hurting the relationship with your suppliers. You will quickly find out what their tolerance level is because they will call you whenever you exceed their payment terms and point of pain.
Please note: your cash flow is not directly correlated sales and net profit growth. During periods of growth a profitable business can – and usually will – experience cash difficulties because the rate of purchasing to meet that growth may surpass the rate of cash collected.
You've asked an important question, one that many business owners ask (particularly those who are just getting their footing). No worries, you're not the first to have experienced this issue, so there's a lot of great advice out there (including George Mikituk's earlier response).
First off, while slowing your business's growth is not the ideal answer, you'll certainly want to be careful not to overextend your funds. If that means forgoing new projects or steps towards scaling up your company, it's still better than drowning in unpaid invoices.
There are alternative solutions, of course. You can use the following tips to handle unpaid invoices/non-paying customers more effectively:
1. Explicitly state due dates
2. Implement late fees
3. Send collection reminders
4. Offer payment installments
5. Use invoice factoring
These are just the bare-bones pointers.
Find more info in the blog that this list came from (it's free, don't sweat it): https://www.lending-express.com/blog/unpaid-invoices/?r=BUS&ad_ID=tugipQxX
Get additional information about invoice factoring and many other types of business financing, here: https://www.lending-express.com/apply/?r=BUS&ad_ID=tugipQxX
Good luck with the business!
Hi Kyle. I would check out this interview we conducted with Jay Singer from Mastercard. He has some great advice on how to manage cash flow: https://www.business.com/articles/mastercard-cash-flow/
The easiest thing to do is to download a cashflow excel spreadsheet from Microsoft -https://templates.office.com/en-US/Cash-flow-statement-TM00000055 - and just enter - you'll be able to forecast your expenses. It's super easy.