But business owners are not “in the business of managing cash flow”, they are in manufacturing, being a medical practitioner, legal practitioner, restaurant owner, and they rarely have much time to figure out how to manage their cash flow to not only pay all the bills and stay solvent, but to do better than breakeven and save for their own retirement.
Sometimes they worry about the money and spend sleepless nights feeling like they’re working as hard as they can to reach their financial goals, but running in quicksand while trying to get ahead. Often, they are spending more than they make and go deep in debt because they are making financial planning decisions based on how much money is in the bank right now, then they are being controlled by the money, and this usually creates a constant worry about money problems.
The good news is, that trend CAN be reversed by the business owner getting into control of the cash flow and strategically use it as a resource in the best financial interests of the company; not allowing the bank balance to control their decisions and actions.
And the is more good news; it’s simple to do with a business cash flow management software system that you use to control your income and profits, pay off debts, and get on the road to financial prosperity. Business owners in 34 countries around the world have proven that the software works, so if you are ready to take control of your company’s financial future read on, because I am simply going to review them for you.
The 7 Steps of The Business Cash Flow Management Control System
Step 1 – Budget Correctly
Accurately predict how much money is needed to operate the company this week and in the future. Figure out exactly what has been spent, by category, over the past year and then add in increases for cost increases, emergencies, business expansion, paying off the debt in a short time, and that all important retirement plan. This becomes the budget, and divide it by 52 weeks to get the weekly income target for your sales team.
Revisit and adjust your budget once a quarter or whenever you make a major financial change like hiring more staff, adding to your fleet of vehicles, or purchasing a piece of expensive equipment.
Your budget is simply: the amount of money it takes for the organization to function and to attain all its goals, so it is also called the “income target” and tells you the amount of income required to survive and prosper, not just to stay afloat.
This is the first step in effective cash flow management. If you don’t know exactly how much your company needs to bring in every week, then you are probably operating using an income target that is too low, so you might be planning to go broke without even realizing it.
Step 2 – Get Paid Well For What You Do
Figure out how to collect the amount of income needed, and more, to do better than just break even. Review costs and your prices to maintain or increase profitability, and get rid of stale inventory quickly by bundling it with more popular products at an attractive price. Establish cash flow policies to insure you get paid, like not accepting checks if you get a lot of bad checks, and sending invoices to collections that are 30 days past due. Remember, you’re taking charge of your financial future here.
Above all, pay yourself a reasonable salary so your household has good cash flow to meet its needs too. There is nothing more frustrating that working hard and not getting a paycheck and the business owner will burn out quickly if they aren’t being compensated fairly.
Step 3 – Confront and Handle The Debt
Calculate exactly how much you owe in past due bills, loans and revolving credit debts. This takes some courage to confront, but what you don’t know because you’re just not looking at it, can undermine your profitability quickly.
Cut discretionary spending (like on meals and fancy office chairs) and start paying down the debt. (Note: for a business, spending on promotion is NOT discretionary, it is mandatory.) And watch the costs from suppliers and pass on increases to your customers. Shop expenses, like your insurances, every year to try and get a better deal.
Step 4 – Spend Less That You Make
Figure out how much of your incoming cash flow is actually available to spend. Most business owners forget that when the money comes in they have to replenish inventory or production supplies, and that some of it is already committed to contract auto-drafts like internet, shopping carts, etc. When you spend more than you brought in, the difference typically ends up on a credit card or an LOC (line of credit) as debt. While working to achieve your financial goals, don’t shoot yourself in the foot. Continually spending more than your available cash flow can end up bankrupting your business.
Step 5 – Pay Yourself First
Set aside regular amounts of money from your weekly cash flow for your salary along with that of your staff, and for your retirement plan – always pay yourself first and put the retirement money in savings or investments that will grow over time. You can’t rely on Social Security taking care of you. So, if you don’t pay yourself into a retirement plan, who will?
Step 6 – Allocate The Cash Flow To YOUR Best Financial Advantage
Allocate some of your cash flow toward paying past-due bills, debt, current bills, and then portion out a bit for future large expenses that are difficult to pay when they come due. Careful, consistent business cash flow management planning can speed up your business wealth building progress.
Step 7 – Use Your Cash Flow To Create More Income
Use any money left over in ways that increase your ability to produce more income without spending more than what is available. Your cash flow is the energy and life blood of your business. It is necessary to pump it through the income producing areas to keep it running well. Everything runs smoother when cash is available.
Seems simple, right? And it is simple. This system is easily learned, and can be used to do these seven steps of business cash flow management planning in around 30 minutes each week. It does, however, take personal discipline and commitment to achieve the goal of financial prosperity so you can sleep well at night and never have to worry about money again. Done correctly and consistently, the end result is always having lots of cash on hand, all bills paid, and plenty of money in reserves to finance what you really want to do with your money; not just pay bills. Who doesn’t want that, right?
Sandra Simmons, President of Money Management Solutions, Inc. says, “Use your cash flow wisely. Treat it as a resource to use to achieve your financial goals. Correctly managing your cash flow will determine how well your company will survive now and into the future. Correctly applying these seven steps of smart business money management planning is simple when you use the Cash Flow Mojo software because it quickly puts you in control of your financial future.”
Business Cash Flow Management – 7 Steps to Controlling Cash Flow