Cash-flow management is an important element to run a business. One must learn this skill to improve the prospects of the firm

Entrepreneurs and small business owners are passionate about their products/services. However, at times, cash flow management can be quite tricky and not everyone is able to manage their finances properly. Lost between chasing invoices and making payments, cash management becomes a tightrope to walk. This article will provide a guide to cash flow management.

Don’t get slack on invoicing: This is the first step for cash inflows to come in. Send invoices as soon as possible after providing goods/services. Set terms to make sure that payments are not forgotten or lost in the process. Always follow up on sent invoices. You can make this easy by creating set templates for email or SMS and by following up on them. Always refer to invoice numbers and cross-refer them with payments.

Keep a tight grip on expenses: In the early stages of a business, it is smart to keep fixed expenses as low as possible. Expenses are everything that maintain gross revenue from going straight into the piggy bank. Although this is very obvious, when things get busy, it becomes easy to lose track. So make sure to keep track of all small expenses as they can add up quickly. A review allows one to keep track where the money goes. Planning a year in advance for large expenses such as rent, payrolls, taxes, interest, materials for goods and products, debts, utilities and other operating expenses can help reduce the financial burden. They will also aid in ensuring that the cash flow stays stronger even in the tightest months.

Make financial projections: Having a clear financial estimate is important. If one does not know where he/she wants to get to, how will one know how to get there? And more importantly, how much one needs to spend along the way? The main business plan can help anticipate and address possible future obstacles.

Maintain a borderline between personal and business finance: Once done with the selection of business name and registration, the need is to open a commercial bank account. Personal and business bank accounts should be kept separate. Holding a borderline between these two finances will provide a more straightforward accounting at the end of the financial year for tax ascertainment purposes. It will also eliminate situations of cash crunch in business caused due to withdrawals for personal expenditure. Keeping the business’ money separate will make gauging of profitability easier and help keep proper track of expenses.

Considering insurance: For an entrepreneur, insurance is one of those things that one hates paying for the business. But in the end, one may actually need it. In order to build a profitable portfolio and managing small business finances, one must spend some time researching about what’s right for the business and personal needs as well.

Set up a retirement account: As a small business owner in the competitive business world, one is probably used to taking up a lot of responsibility such as drawing up a detailed business plan  to creating a budget for the success of the company. So, it should come as no surprise that funding for retirement, too, shall fall on the shoulders.

Invest in technology: The next thing to manage small business finance is to invest in technology and understand all terms related to the business. Sometimes, it is better to use online software to keep records for finances and accounts and establish an online presence in order to attract more customers.

Keep track on money movements: No matter how small the company is, one is required to have outlined payment terms concisely and efficiently to manage small business finances. Even though this is challenging in today’s business world, one needs to take into account both the financial and legal side of monetary transactions and trace all movements of the capital regularly.

Negotiate with vendors before confirming a contract: It is better to negotiate with the vendors before signing a contract and indulge in a good bargain. Successful negotiators know before they begin negotiating what they want to achieve during the negotiation. Examine purchase terms like late payment penalties and grace periods for negotiating for a great deal. Sometimes being given an extra 30 days to pay can save more than a five per cent discount.

Design an emergency fund: Once one understands the importance of negotiating the prices from vendors in order to manage small business finances, the next thing that needs to be done is to design an emergency fund for the success of the business entity. Companies don’t give consistent sales month on month.

While running a start-up can be exciting, it can also create challenges, especially when it comes to managing finances. So, if one is facing the same issues of how to manage the finances and wants to stand outside the crowd, one must keep the above tips in mind and give one’s venture a bright future.

(The writer is Assistant Professor, Amity University)