Managing cash flow is THE MOST IMPORTANT aspect of running a business, in my opinion. You need cash to flow into your business so you can pay the costs associated with running your business. It touches almost every part of your business. That’s why cash is king. It rules everything.
And managing it can be a very challenging task if you don’t know how. In order to effectively manage your cash, you need to track the monies coming in the door and going out the door on a consistent basis. How consistently you ask? Well it depends on the size of your business; but minimally once a month. It also depends on your Financially Thriving Factor™. Your Financially Thriving Factor™ is the numerical value that determines whether your money is running you or if you are running your money. It’s your risk factor as to how close you are to experiencing a cash flow crunch. Are you on the verge of flourishing or failing?
Now to determine whether or not you are at risk of having a poor Financially Thriving Factor™, you need to be aware of a few things.
Why Is My Cash Always Low?
This is probably the key sign that you are on the verge of experiencing a cash flow crunch. No matter what you do your bank balance is always low or in the red. Your constantly paying the bank in overdraft fees. Being aware of where you are spending will allow you to not only understand what it takes to operate your business, but it will also help shed some light on what it doesn’t take to operate your business. Are all those expenses really necessary?
Why Am I Always late?
The second sign that you are on the verge of experiencing a cash flow crunch is that no matter how hard you try to get ahead you always seem to be behind. Your bills are constantly late and overdue. Paying bills late makes it hard to manage your cash because just when you think you have enough to pay Bill B, Bill A shows up with his hand out. In order to get ahead of things you have to develop a strategy on how you can pay both, without placing a hardship on your business. Forecasting is a tool that can help with this. It allows you to estimate when money is coming in so that you can plan how to spend it.
Why Is My Home Life A Mess?
Believe it or not, your home life and your business are connected in more ways than one. Not just because you are the owner, but because in a perfect situation your business supports your life. Take a look at your personal bills – are they also being paid late? Are they also piling up in a corner of the kitchen table. While we all strive to create and build a business that supports our personal life, arbitrarily spending money on personal expenses from your business account is the tell-tale sign that a cash flow crunch is on the way.
While you may think that your business and your personal life are one in the same, they are not. They are two separate legal entities (assuming you incorporated your business), just ask the IRS. You have to develop a marketing plan that will allow your business to generate enough revenue to pay your business expenses, including a salary payout to you. Paying your household expenses straight from your business bank account is not the way to do it, and you run the risk of have the IRS come in and shut your business down because you pierced the corporate veil.
What warning signs have you experience that let you know a cash flow crunch was on the way?
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