How to Maintain a Healthy Cash Flow

Written by: Katie Conroy

Maintaining your business’s cash flow is crucial to the success of your company. Without a healthy cash flow, you risk financial penalties or even outright business failure. But what exactly is cash flow and how can you maintain a healthy one. Here’s a primer on maintaining a healthy business cash flow. This is one of the valuable resources you can find on the Small Small Business blog, so make sure to visit often!

What is cash flow?

Cash flow is essentially the movement of capital in and out of a business. As you sell products or services, cash comes in. As you pay for your expenses, cash goes out. The goal, of course, is to get more cash flowing into the business than out of it. Maintaining a healthy cash flow isn’t easy, but it’s essential for the success of your business. 

Be prepared

There are any number of risks associated with running a business. Serious challenges ought to be expected and prepared for. This is called cash flow forecasting and it ensures you’re able to weather any cash flow storms that might crop up.

Create a separate bank account for your business

It’s an incredibly common mistake, particularly among startups, to mix your business and personal finances. This will give you a world of trouble. When building your business, make sure you set up a separate bank account for it. You can get your bank to issue you a credit card, make business-related purchases through the account, and pay your vendors using only company money.

If in doubt, look into forming an LLC. This not only separates your business and personal affairs, it also protects your personal assets against litigation brought against your company. A service like Zenbusiness, Inc can help you do the legwork without the hefty attorney’s fees.

Monitor your inventory

Analyze your inventory movement to determine what sells and what doesn’t. The lagging sellers ought to be cut before they soak up even more working capital. Your aim should be to keep your inventory levels as lean as possible.

Keep buffer money

Knowing your breakeven point, ensure your business has enough cash to fund your business needs. It’s good practice to keep three month’s worth of outgoings in the bank in case of emergencies.

Control cash outflows

One of the best ways to stay on top of your cash flow is to control your expenses. Don’t ignore cost-cutting opportunities. Something as little as early payment incentives could be just the drop in the bucket your business needs.

Grow your cash

Always keep your cash balances in interest-earning accounts. You may encounter a minimum balance requirement but the offset is worth the reward. 

Focus on cash flow over profit

If your cash flow is in order, your profits will follow. The same cannot be said of the opposite. For this reason, it’s essential that you prioritize your cash flow monitoring over your profits.

A healthy cash flow isn’t out of reach. With these tips, you’ll be in a far better position to monitor your cash flow and catch any problems before they blow up. Now you know everything there is to know about keeping a healthy cash flow.

Achieve a healthy cash flow

About the author:

Katie Conroy

Katie Conroy is the creator of Advice Mine. She enjoys writing about lifestyle topics and created the website to share advice she has learned through experience, education, and research.

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