You’ve probably heard the analogy that cash flow is the life blood of a business. Yet, it’s one of the most difficult things that a budding entrepreneurs to understand. Even seasoned business people can have lapses in cash flow that threaten the survivability of their company, and it can come from unexpected places, like a bankrupting client. There is always something new to learn about the cash flow of your business, but one of the ways that most business people try to manage it is to establish lines of credit to pull from when there is a cash gap. At some point their business education in cash flow, business owners will discover all sorts of lending from equity lines of credit to merchant cash advances.

Learning More About Cash Flow

Just like blood is pumped through the body and has to maintain an adequate pressure in the body, the cash flow in your business requires a steady supply to keep your suppliers and your employees paid, and to deal with financial emergencies. You can’t really use only your business receipts to supply all your cash flow unless you have significant investments and savings to borrow from on a bad day. Otherwise, most businesses will use cash loans to help support the activity of their company, when something happens to offset the delicate balance of receivables to accounts payable. If you are having trouble collecting your payments from customers, this in turn can affect the amount of money that you have to run your business. If you run out enough to keep you from paying suppliers, they may refuse to do business with you or levy fees for late payments. If you don’t pay your employees on time, you’re also in a great deal of trouble.

Keep Track Of Records

You should have some numeric evidence to how well your cash flow is doing, in the form of reports and bank statements, accounts receivables, and account payable ledgers. You should also be right on top of your debt collection practices to see how that is impacting your company’s cash flow. When it looks like sales and receivables are bringing in a banner month, you don’t have to use your credit lines. When you see one part of your cash flow equation going out of whack, make sure to pay special attention to getting it back on track.

Manage Your Cash Flow

Review your records for everything to manage your cash flow properly. If you find shortages occur frequently on a weekly payroll, consider changing to bi-weekly or monthly. Check all your statements on a weekly basis to see how you’re doing and plan ahead. You want to avoid shortfalls of cash that might crimp your business operations, whether it’s failing to do payroll on time, or not having enough cash for inventories. Try to keep track of demand for your products and services too. Keep those items that are flying off the shelf fully stocked, as they contribute to your cash flow. Try to reduce items that are just hogging shelf space, but not really attracting buyers.

Understand how much you are paying in late fees, for missed payments, or try to renegotiate debts with your creditors to help your cash flow. Try to reduce expenses as one way to increase your cash flow either by delaying payments on things that aren’t going to cost you too much, or by eliminating the expense all together, through automation. Make sure that you don’t invest too much in a technology that isn’t going to do what you need, but be sure to take advantage of technology that can get more done with fewer expenses in hiring. Opt to hire part-time or temporary, if you don’t think you can afford full-time staff, to keep your operating expenses low in times when the economy is slow.

Quarterly taxes can also affect your cash flow. You’ll need to have enough estimated taxes ready to pay Uncle Sam or face stiff penalties at the end of the year. You will have to plan those payments, just like they were your utility bill that came in quarterly. Having multiple bank accounts where you can set aside monies for taxes and other expenditures, like payroll, can help you amass sufficient funds in expectation of a big payout without affecting other expenses that are coming out of different accounts. When your operating account is low because of emergencies or shortfalls, use your line of credit to help offset the gap. When the operating account has a lot more money on it than you need that month, directly transfer that money to investments or accounts with a higher rate of return.