Got Cash? 3 Tips To Manage Cash Flow

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Cash flow management is critical for any business's success. According to efinancemangement.com “The fundamental goal of cash flow management is to ensure that the incoming flow of funds is always greater than the outgoing so that the business sits on a surplus. 

Here are 3 tips to help you to achieve this goal:

Tip One - Create an emergency fund for your business

According to PNC Bank, “Surveys show that 17% of business owners say that if faced with two months of declining revenue they would have to close, and other statistics show that 25% of businesses won’t open again after a disaster.” Think about what happened as a result of the pandemic. The first step to creating an emergency fund is understanding how much you need to operate each month and how many months you would like your emergency fund to cover.

Tip Two - Create a Budget

This tip goes hand in hand with creating an emergency fund. This is about going deeper to dig out specific information to create categories of spending so that you can create a plan that is realistic based on your past experiences.

Tip Three - Track Your Money 

This one is the most important tip because if you don’t know where your money is going you can’t create a plan for it. 

Successful cash flow management is key to running a successful business. It starts with getting clarity about the current status of your finances. Additionally, creating an emergency fund and a budget will help you to achieve your goals and stay cash flow positive.

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What Do Banks Look For When Deciding To Give A Business Loan?

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Your business is growing and you need more time in the day to do everything. A new team member would be great BUT you want to maximize cash flow and some of your cash is still on its way. 

What do you do?

It’s like the chicken and the egg because you need one thing to do the other. It might be time to look for a business loan at your local bank but you are not sure what they will ask from you. 

Today I want to share the top 3 things banks look for when giving business loans.

Number One: Credit History

We all understand the importance of having good credit but some of us might need help understanding one of the easiest ways to get there. Sorry, this will not be earth-shattering news. I was recently at a local networking event sponsored by US Bank and one of the panel guests from US Bank said the best practice for having good credit is using no more than 50% of your total credit utilization. She went on to say of course not carrying a balance month to month is also a great way to establish good credit. If you need help achieving this goal check out a goals coach courtesy of US Bank. 

Number Two: Business Plan

The banks want you to show them your plan before they show you the money. It makes sense and we see this even on popular tv shows like The Shark Tank. The sharks always start by asking about elements of the entrepreneur's business plan like asking about sales projections, who is their target market, and many other questions. It starts with your business roadmap. If you need help with getting started on this check out SCORE.org  for help.

Number Three: Financial Statements

Yes, the banks want to look at your business health through the lens of your financial reports. The financial reports tell the story of your business. The income statement tells the story of your sales, expenses, and what was left. The balance sheet tells the story of what you own, owe, and what remains as equity in your business. Additionally, banks look at the financial statements to locate trends in revenue, profitability, and cash flow. They are looking for strong healthy businesses that will be able to pay them back. If you need help with creating your business financial story I am always here to help.

To recap, you need money because there are only 24 hours in a day, and hiring a new team member is paramount. Additionally, you want to maximize your cash flow and use O.P.P. (other people's money:) to help grow your business. The banks are looking for 3 key things which are good credit, a solid business plan, and your financial story via your financial statements. My challenge to you is to take a hard look at your business and these three criteria to see if your ducks are in a row. If they are not in a row try scheduling 15 minutes per. day to work on them.

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5 Tips to Improve Your Cash Flow Management

In the world of small business entrepreneurship, cash flow management is King! The lack of it can quickly derail your business. According to Fundera.com, a U.S. Bank study stated that a whopping 82% of failed businesses cited cash flow problems as a factor in their failure.” That is a huge percentage. Today I want to share 5 tips to help you improve your cash flow management. 

1. Create a budget - This one is a no-brainer. You can’t begin to understand where all your money is going & plan for the future until you have a budget in place. A simple spreadsheet could get the ball rolling.

2. Create a Cash Flow Forecast - This sounds big & scary but it’s just simply tracking where your money is expected to come from and where you expect it to go over different intervals of time. Your budget will help you to gather the data for your cash flow forecast.

3. Track your cash flow regularly - This can be done daily, weekly, or monthly. I like to do it on a daily to weekly basis so that nothing falls through the cracks. Life can get busy inside of your business and you always want to stay on top of what is going on with your money.

4. Understand Your Business Cycle & Timing of Payments -  It is crucial to understand when there are slow periods inside your business so that you can plan for those low sales periods within your business. Additionally, you also want to understand how your customers pay you as it relates to the timing of receiving payment vs. business obligations you might have such as loans and overhead expenses. 

5. Create a cash reserve - This is similar to having a personal rainy day fund within your personal bank account. This will help you to continue moving forward with growing your business despite market fluctuations. 

Ensuring that you have enough cash on hand to run your business is crucial for success. Creating a budget, a cash flow forecast, tracking your cash on a regular basis, understanding your business cycle and timing of payments along with having a cash reserve can make or break your business. 

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Where Is My Money? I Made Money But I Don't See The Cash In My Bank Account!

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Have you ever felt like this guy? You work hard month after month and at the end of the month, you have more month than money? If so you are not alone. I shared in last week’s post that cash flow is the reason that 82% of small businesses fail. That is a pretty high percentage. There is a way to stay abreast of what is going on with your cash flow and that is taking a look each month at your statement of cash flows.

What Is The Statement of Cash Flows?

According to Investopedia, “A cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company. The cash flow statement measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses.” That is it in a nutshell.

What Is On the Statement of Cash Flows?

The statement is comprised of:

• Cash From Operating Activities - These are the core services or products offered to customers that generate cash for the business. Additionally, it includes any uses of cash from the business operations. It also includes changes in cash that can be attributed to accounts receivable, depreciation, accounts payable, and inventory.

• Cash From Investing Activities - These are all the uses of cash and sources from business investments.

• Cash From Financing Activities - This includes money from investors or banks, distributions, and the repayment of debts.

Why You Should Care?

The goal of the statement of cash flows is to ensure that the majority of your cash is coming from operations and it is positive. There are many stakeholders who might be interested in this information including investors, and even potential employees who want to make sure you have a solid cash position that will lead to growth in the future. It helps you to know where your money went. For example, if your bank account has one number and your income statement has another number the statement of cash flows will help you to see where the money “flowed” within your business and answer the question of “Where Is My Money?”Moreover, the statement of cash flow can help you to create a budget for the future and give you peace of mind to know that you are not on the brink of insolvency.

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