One of the most important things a home technology professional business can do is actively manage its cash flow. Particularly if the business is growing, owners need to know how much cash the firm has on hand at any given moment.
Without proper cash flow management, business owners won't know how much cash they need to run the business or when the money comes in or goes out.
Whether you're managing your cash flow and want some tips to improve your methods or you're starting from scratch, there are certain key features of keeping track of your cash flow:
1. Create Projections
It's important to look ahead and estimate your business's incoming and outgoing cash. Keep track of where money is coming from and when it should arrive on a spreadsheet for six to 12 months in the future. You can update this information weekly to keep it as accurate as possible.
You can add your expected cash receipts then subtract your expected cash payout from the total to estimate the cash you'll have on hand at the end of any given period.
2. Check In Regularly
You can't create a projection then leave it alone for long periods of time. It's best to keep track of your cash flow at least monthly; however, weekly check-ins and updates can keep your estimates more up-to-date.
With consistent monitoring, you'll know as soon as possible if your cash flow is running thin and whether you'll need to adjust a payment or cancel an unnecessary expense. If your cash flow is increasing drastically above what you need to run the business, this may signal that you have room to expand.
3. Focus on Receivables
Unfortunately for businesses, customers don't pay right away and some even pay late. To improve cash flow, owners need to keep a close eye on their receivables, starting with clear payment terms and invoicing.
Before beginning any work, the business and the customer should have a signed contract that clearly defines when payment is due and the penalties, such as interest, if they fail to make a timely payment. Once work has begun on a project, invoices should be issued to clients as quickly as possible. The sooner they receive invoices, the faster you can get paid. To quicken the process, you may want to discuss with clients sending invoices by email.
Additionally, you should make it as easy as possible for your clients to pay you. Therefore, have multiple payment options available such as online or with a credit card. Requiring checks can slow down the process.
4. Track Payables
Cash flow is equally about the money coming into a business as it is about the money flowing out to vendors. One of the biggest reasons for carefully managing your cash flow is to ensure you can always pay your suppliers in full and on time. Not only will it keep the vendors happy, it can lead to discounts and better payment terms in the future.
Make it easy to pay your vendors by setting up electronic fund transfers. These can be set to move funds on the day they're due. You don't want to pay your vendors early, because it's best to retain your cash as long as you can.
To further refine your company's cash flow management, check out CEDIA's Managing Cash Flow webinar, free to CEDIA members.