Small Business Cashflow Basics

Profit is crucial for any kind of business to maintain success. But it’s not everything. If your small business doesn’t maintain positive cashflow, it won’t be able to thrive — or even survive —  for the long-term. Put simply, cashflow is the money you have available for operating your company. It’s the money in your bank account that you can access now — not in a few days or months down the road. MRHerrera Financial Ministry exists to help people find financial freedom and build a strong foundation for healthy lives. That’s why we’ve provided some practical cashflow tips for the small business owners out there.

Determine Where You Stand

The first stage of creating and maintaining healthy cashflow is to evaluate whether you have positive or negative cashflow right now. You can estimate this by reviewing how much money is in your bank account at the beginning of the month. Add in all payments received, loan advances, and proceeds from long-term assets. Then, take out all expected expenses, including day-to-day operations, loan payments, and long-term asset purchases.

If the remaining amount is more than you started with, it means you have a positive cashflow. If it’s less, you have negative cashflow.

Establish an S Corp

The business structure your company uses can impact your cashflow. By forming a corporation, you will legally protect yourself (as the business owner) from corporate liabilities and debts. S corporations, C corporations, and Nonprofit corporations all accomplish this.

Each type of corporation comes with its own benefits. For example, operating as an S Corp will help you avoid double taxation. And if you research how to start a S Corp, you’ll find that it can be a quick and cost-effective option.

Create a Cushion

Nothing is guaranteed in business, and you can expect plenty of surprises on your journey. That’s why it’s prudent to build a cushion for your cashflow. Work towards adding one month’s worth of extra expenses to your bank account so that you have some money to fall back on when unexpected expenses arise.

Send Those Invoices

When it comes to invoicing customers, don’t wait until the last minute. The sooner you send invoices, the sooner you will get paid. You can remind customers via email to make payments, especially those who pay late. Offering discounts on your services or products can also incentivize customers to pay on time.

Work with Suppliers

The suppliers you choose play a major role in your company’s cashflow. Try to build close relationships with your suppliers, and look for ways to improve business for both sides. For example, you could guarantee early payments to your suppliers in exchange for lower rates.

Get Rid of Bad Inventory

Bad inventory doesn’t just refer to rotting food or outdated electronics — it’s anything that is not selling for your company. Make sure your inventory is full of products that bring in money. Anything else should be eliminated, whether that means selling it at a discounted rate, donating it to a local non-profit, or discarding it. Make room for the good stuff.

Prepare for Taxes

Taxes have a way of sneaking up on you, especially when they happen every three months. When you forecast your cashflow, be sure to allocate funds for the taxes you owe. Each month, set aside money for taxes so that you’re not overwhelmed by the next bill.

If you want any hope of long-term success for your business, keeping up with cashflow is a must. Remember to assess where your company stands financially, and follow the tips above for building and maintaining healthy cash flow. Making it a priority to always have accessible money will help your business get through difficult times and set you up to thrive.

Would you like more financial insight for business or personal purposes? Visit mrherrera.com today to see the encouragement and tools we provide!