If cash flow is on your mind, then cash flow planning should be too.
Whether you’re a small business owner or the head of a multinational corporation, cash can be hard to come by. Fortunately, cash flow planning will help keep your company afloat and tackle any financial issues that may pop up.
You need to know how much cash you have coming in and going out each month for this strategy to work best. To do this accurately, it’s important to track all expenses and income sources.
This blog post will provide you with cash flow planning tips to help your business stay in the green.
Prepare Detailed Monthly Income Projection
It’s not enough to track cash inflows and outflows; you need to project your cash flow for the month. You should know how much cash will be coming in each day, what expenses are necessary that month, and when all of your bill payments are due.
Making a cash flow projection can help ease some stress because it gives you an idea about whether or not there’ll be money left over at the end of the month.
You may want to use something as simple as Google Sheets to track everything down to individual transactions. The simplest option is just jotting things down by hand on paper, which works fine as well!
As time goes on, this cash flow projection will become a regular part of your cash flow management process. You’ll be able to look back and see how close you were with each month’s cash flow plan, then tweak it if necessary for the next time around.
Enforce Credit Collection Policies
Cash flow planning requires cash, and cash doesn’t always flow in as scheduled. You may need to implement a credit collection policy if your customers are not paying on time.
It’s okay to charge late fees or interest rates when necessary. Otherwise, you could go out of business because too much cash has been tied up with clients who refuse to pay what they owe you.
Once again, monitoring cash inflows and outflows will alert you early enough about which clients aren’t paying their bills promptly. You can then take action before more damage is done.
However, make sure that your relationship with clients is a healthy one. You don’t want to overburden them with fees and credit requirements, or they may decide not to work with you.
Efficient Use of Your Line of Credit
If cash is tight, you may need to use a line of credit as an emergency fund.
You’ll repay this cash advance quickly, and it can help with cash flow planning when money comes in late or not at all. However, make sure this short-term solution doesn’t become a long-term one because high-interest rates could further damage your business’ cash flow.
It’s important to have the right type of relationship with your bank so that they understand what you’re doing and why. You should also know how much you have left on your line of credit before taking out another loan from them if cash isn’t coming in fast enough for whatever reason.
A healthy working relationship between banker and client helps ensure both parties are happy.
Ask Suppliers for Longer Terms
If cash is tight, you need to look for ways to stretch your cash.
One way of doing this is by asking suppliers if they can provide longer terms (such as net 90 rather than 30).
You can also ask them for discounts on bulk orders, which could help you save cash in the long run. If your supplier is willing to work with you and understands why this may benefit them as well, it’s probably worth asking about these options.
When cash flow planning is done correctly, it will put your company in a better position to handle all sorts of financial issues. Just make sure you have good relationships with everyone involved so that they understand what you’re doing and how their part fits into the big picture.
Track Your Inventory
To do cash flow planning correctly, you need to track your inventory.
You should know what items are selling well and which ones aren’t, as well as how much of each item is left in stock. This will help you adjust production needs accordingly so that there’s enough product on hand for customers while not wasting raw materials.
When doing this type of tracking, it can be helpful to divide products into categories such as slow-sellers and fast-moving goods. Then make sure they’re properly allocated across all branches or warehouses in the company’s network (if applicable).
Managing inventory is a careful balance: too little product could cause lost orders and unhappy clients. Having too much will result in added expenses for storage or wasted materials.
That’s why it’s important to balance the type of inventory tracking you do, how frequently you check on stock levels, and when you order more items from your supplier.
Understand Basic Accounting Principles
Business cash flow planning requires a good understanding of basic accounting principles.
You should know how to read and understand your financial statements, such as the balance sheet and profit-and-loss report. If you’re not sure about these concepts yet, consider taking an online bookkeeping or business management course.
When it comes to cash flow planning, knowing what numbers mean will help you make better decisions for your company’s future. It will also show that you care enough about your business’s finances to understand how they work.
By understanding basic accounting principles, you’ll be able to better plan for your company’s future. You’ll make sure there is enough cash on hand when it comes time to pay the bills or handle unexpected expenses.
Learn Cash Flow Planning Today
Cash flow planning is a good way to ensure your business stays afloat and healthy. It does take work, but it can be done successfully if you understand what needs to happen.
Are you looking for help with your cash flow planning? Contact The Asset Advisory Group (TAAG) today. We offer various services to assist you in your business’s financial growth.