2. Establish benchmarks
One of the best ways to manage cash flow is to monitor growth using benchmarks. Benchmarks are standard reference points that allow you to compare key performance metrics, like profit and expenditures.
Benchmarks can be based on internal data, like year-over-year gross margins or profit/loss statements. They can also be based on external or industry data, like the average marketing spend or pricing targets for similar businesses.
3. Identify cash flow risks
It’s not always possible to anticipate every financial challenge. Still, there are some you can plan for. Which ones? That all depends on your business, but some common scenarios can negatively impact your cash flow. For example, aging equipment, looming tariffs, historically slow weeks or months, or potential staffing needs can all lead to higher expenses or lower revenue.
Anticipating these risks can make it easier to prepare for and manage them in the future. That can mean putting aside extra cash each month or identifying reliable lending solutions (QuickBooks Capital is one business funding option that can help manage cash flow.) to help you weather the storm.
4. Evaluate your expenses
An increase in revenue can obviously help improve cash flow, but cutting unnecessary spending can also lead to big improvements. Every year, or even more frequently, review your costs and find what you can cut or minimize.
For example, when was the last time you shopped around to compare insurance rates or inventory/supply costs? Are you spending money on advertising channels that are no longer relevant or efficient? Leveraging monthly services you don’t need?
Answering these types of questions can help you cut unnecessary spending, improve production, and increase employee efficiency – all of which can lead to improved cash flow.
5. Track your cash flow
Each of the steps above can help you improve cash flow, but if you really want to manage your cash flow in the new year, or any time, you need to keep track of it. That means identifying a reliable method of tracking revenue and expenses.
Today, business owners can choose from a variety of financial applications. QuickBooks, for example, makes it easy to manage cash flow at every part of the process, including sending invoices, managing payroll, tracking sales, running reports, and even securing capital when necessary.
6. Manage your business and personal credit
What do your business and personal credit scores have to do with cash flow? Surprisingly, a lot. Need capital to take advantage of an incredible inventory offer? Hoping to bridge a cash flow gap between invoices? Want to take advantage of vendor credits?
If you answer yes to any of those questions, you may need to rely on your personal or business credit. Knowing your score will make it easier to identify your funding options. If your score isn’t where you want it to be, you’ll be able to take the steps necessary to improve it. Plus, a healthy credit score often leads to better rates and more flexible funding, both of which can help you efficiently manage cash flow.
It pays to get it right
Cash flow is one of the most important aspects of your business. When you manage it properly, it’s easier to do everything from pay your bills to expand and plan for future growth. As you say goodbye to another year, set your business up for success in the upcoming year.