Having a positive cash flow is vital for operating a successful business. Being a business owner is challenging; you wear multiple hats and have to juggle hard facts like seasonality, growth, payroll, employee/customer retention, payment cycle, and collection cycle (For example; are these in sync?)
Everyone wants to see your dream (your business) succeed. At Excite Credit Union we have put together some things to keep in mind when operating your business and maintaining that healthy cash flow.
Cash reserves- Every business goes through cycles, but it's imperative to have a cash reserve in a business account. As a business owner, you must eliminate the burdens that keep you up at night.
When a healthy cash reserve is in place, you have the peace of mind of knowing you can buy that new piece of equipment, update your software, etc. The recommended amount to have in reserve is six months of operating expenses.
Utilize your financial institution for business credit- You already have a cash reserve, so with every good plan, we need a backup plan. This is where having business credit comes into play. Sit down with your local business advisor and understand what lending solutions they offer to help you bridge the gap. From years of experience, most business owners will take advantage of the business line of credit and/or business credit card. Those options allow the flexibility of only using and paying interest on the portion you need to use, and it also allows you to keep your cash reserve. Both the credit card and line of credit are short terms options. Remember, it's always best to have one or both of these in place BEFORE you need them.
The long-term option would be a business loan. The loan would be helpful for the larger purchases you will need to make, i.e., automobile, heavy equipment, business buyout, etc.
Payable and receivables- We heard the famous JG Wentworth commercials saying, "It's my money, and I want it now" Well, the truth is in a small business; it is your money, and you need it now to make payroll and operate your business. For example, suppose you don't have a CFO or financial officer in place. In that case, investing in good accounting platforms like quicken, QuickBooks, etc, to help track and maintain your invoices, inventory, and overdue payments. This is a crucial component to ensuring your business is operating sound and healthy.
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