You don't have to be a small business owner to understand the importance of cash flow. Anyone who's ever found themselves holding off on paying a bill until a check clears in their bank account is familiar with the basic premise of cash flow: You need to manage the money coming in to ensure you have enough on-hand to cover your spending as well as unexpected expenses.
In small business, cash flow involves just about every aspect of your business from payroll to accounts receivable to inventory and purchasing. When thinking about cash flow, it's important to consider such areas as effective billing practices and collections, to ensure a steady influx of cash; establishing and maintaining good credit, to cover unexpected shortfalls; and managing your spending -- including payroll, purchasing, and overhead -- to keep costs in line with your income.
As with many areas of small business, the best defense against a cash flow crisis is a good offense. Examine your billing practices and spending habits to see what can be done to maintain a regular cash flow. Plan ahead to establish cash reserves and credit opportunities that can help protect you in a crunch. And make a consistent effort to increase your cash flow by increasing revenues and decreasing spending. A healthy cash flow not only gives your business stability in its current operations, but it also gives you a position of strength from which to plan for future growth.
To help you learn more about cash flow, and find out how to manage and increase it in your business, check out the following:
Meet Ellen Bochner, the third-generation owner of Leo's Department Store in Brooklyn, NY. Find out how she manages inventory ordering, seasonal considerations, and vendor payments to keep her cash flow positive.
Read Jim Burton's answer to the question: "What's the biggest mistake small business owners make regarding cash-flow management in a recession?"
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