I recently read that only half of new business start-ups survive after the first five years of business. I think that not managing the finances of a small business wisely is often the reason for these unhappy endings.
Cash flow is critical to operating any business – regardless of size because it drives daily operations, expansion and purchasing power. Managing the ups and downs of cash flow can help you reach your business goals. Here are a few tips to help business owners get on the right track of managing a business’ finances.
- Pay your company first and build a cash reserve. This reserve will help you to continue your day-to-day operations during times of low cash flow.
- Create a budget and track expenses. It’s important to keep a budget and continually track monthly operating costs and income. Always knowing the state of your business finances allows you see the red flags and issues before they become insurmountable.
- Focus on your largest debtors. Invoice customers who owe the most first.
- Consider giving a discount for paying within 20 days. Depending on the nature of your business, it might make sense to offer a slight discount for those that pay by credit or debit card within 20 days of the invoice.
To sum up, you must have regular and steady income. You must plan and budget your expenses and spend less then your income to build a reasonable reserve at the end of the day.
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