Proper cash flow management is one of the most critical aspects that every business owner must master for long-term financial success. Achieving this standard requires many skills including budgeting, and forecasting, combined with good financial habits.

 

The first step in proper cash flow management is to create a budget. This will show you how much money you are spending and where you are spending it. The second step is to create a cash flow forecast. This will help you plan your expenses and make sure that your funds last through the year. The third step is to create good financial habits such as saving money and paying down debt so that you can have security and goals.

Here are three key strategies for better cash flow management:

Create a Budget

Budgeting is one of the most important aspects of small business. It helps you estimate your revenue and expenses, manage your cash flow better, and plan for the future. You can create a budget with the help of a budgeting tool or manually. The latter option is more time-consuming but it gives you a better understanding of what your expenses are and how much money you need to make in order to cover them 

When you create a budget, you will want to estimate your expenses and income. For example, if you are planning to open a restaurant, it’s helpful to know how much money you will need for supplies and rent in the first month.

 

To find out what your monthly expenses will be, look at the following:

  • expenses such as food and utilities
  • income such as salary and rent 
  • other expenses such as the cost of business cards, marketing materials, and website costs.

A budgeting tool is a recommended investment in your time to set up, as it’s a software application that helps people keep track of their finances. 

 

Create a financial forecast 

A cash flow forecast is a projection of your business’ performance. It gives you goals to work towards and projections of expenses you can account for. You can use it to forecast the future of your company and plan for the unexpected.

 

The best way to go about forecasting your future business performance is to start by looking at your past performance. What were the highs and lows? How long did it take for those highs and lows to come about? What might have caused those changes in performance? Once you have a good idea of what has happened in the past, you’ll be able to predict what could happen in the future with more accuracy. .If you’ve made an action, what could happen as a result of that action?

 

The effectiveness of this technique can be massive especially when you are using it when making big choices. It allows you to anticipate what could happen and take the appropriate action. Creating a ‘what-if’ scenario gives you a visual representation of your cash flow if you decide to increase your stock holding, employ more staff and when to do it. 

Be Smart with your time – build some good financial habits

A lot of small business owners have a hard time managing their cash flow. This is because they don’t know how to set up good financial habits from the start.

The good news is that the path to good habits is a lot smoother if you do it early. If you don’t set up these habits, it’s going to be harder later on. 

That’s why we’ve put together a list of things that small business owners should focus on in their first year in business. These are habits that will help your small business stay on track, even in the beginning

Four key financial habits to set up from the start:

  • Maintain a cash reserve- it’s important to put aside money for emergencies and unexpected events. 
  • Evaluate your cash flow regularly – if you know when you will get paid, you can better plan for what is coming up next month.
  • Set goals – it’s important to have long-term and short-term goals that will help you stay motivated and on track with your finances.
  • Keep track of KPIs (key performance indicators) – this will help you measure your progress and see where improvements need to be made.

The key strategy you must implement is to set yourself up for success. Ensuring you understand your numbers, maintain your finances regularly, and manage your cash flow will be the best backbone for the success of your business.

MoolahMore can help you make cash flow forecasting and management easier. It integrates into your accounting software and is an easy tool to give you the right answers.

Test it out and see the difference. Download the app now and start your 30-day free trial.