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Cash Flow Management Principles, Known Methods and Tools

While you drive your online business to success, you must remember that cash is the oil that makes your business running smoothly.

It is cash that will bring you to your destination and to your ultimate business goal. The way you handle and manage your cash flow will determine as to how far you could go with your business.

Mismanagement of your cash flow can make you stop on your way to success and delay your trip. Or worse, mismanaged cash flow can make you totally abandon your goals and never reach your ultimate destination.

What is Cash Flow?

When we say cash flow, we do not mean your earnings only. Cash flow includes cash inflows and cash outflows. Cash inflows are the money that you earn. This can include payment for the service or goods purchase by your customers, interests you earn on your investments and savings; and even receipt of a bank loan.

On the other hand, cash outflows comprise of the money you pay for rent, wages, operating expenses, purchases of fixed assets like computers, office furniture, among others. It can also include repayments of your loans, dividend payments, and income tax and other taxes you are required to pay.

Why Manage Your Cash Flow?

Your cash flow tells you how money is coming in and going out of your business. As such, your cash flow will serve as your guide in decision-making process, especially in determining whether you should buy new office furniture or move to a new location.

Your cash inflow will allow you to make financial forecasts which will let you know what actions to take to improve your cash flow.

How to Manage Cash Flow? (The Right Way)

As cash flow basically tells you the flow of cash in and out of your business, its management should be focused on the incoming and outgoing of cash. First, you need customer management. You should have a clear and specific policy on your standard payment terms.

If you are involved in online business, makes sure that all purchases are recorded and accounted for. Invoices should be issued on time and payments must be double-checked to ensure right posting. This is important so you will know how much cash on hand you have and how much cash is expected to flow in. Such knowledge and record keeping will enable you to make sound business decisions.

Aside from customer management, you need to have record management. This includes bookkeeping tools and techniques that will help you record your incomes and expenses and to keep you update on your accounts receivables and account payables.

Lastly, do not sit on your money. Know when you have enough cash to expand your operation or to divert into a related product. You can also invest your money to earn additional income and dividend. But be sure to spot any possible problem that may arise in your cash flow. Create a contingency plan by specifying possible sources of cash should the need arises as well as ways of increasing your cash flow in times of cash shortage.

What Tools to Use?

1. You need a simple book-keeping system…

This is like the ledger that will record all your business transactions and their corresponding amount. A simple spreadsheet can be used as bookkeeping tool. You can use Excel spreadsheets or a more complicates spreadsheets program if you have them.

The most important thing here is you know how to use the spreadsheet and you can navigate your way around the program. It is important that you know how to use the system not only to save on expenses as you will not be hiring an employee to do the bookkeeping for you but also that you will understand fully the how cash comes in and comes out.

Excel spreadsheet is ideal if you are just starting up your business. However, as your business grows and you rake in more customers and make more sales, you will be in need of a more comprehensive bookkeeping system. In fact, you can use an accounting program. There are diverse kinds of accounting software available online and in the market. 

Choose the accounting software that is tailor-fit for your business needs. Moreover, purchase an accounting program that is user-friendly or the one that offers free tutorial. This is to enable you to learn how to use the system and to operate it. 

In addition, make sure that the accounting software you intend to buy offers after-sales service so that you can easily call them for assistance should problem with the system arises.

2. Get a back up memory storage device!

While this is not as essential as the accounting system, it is imperative that you have back up storage device to prepare for possible data loss. This ensures easy storage and retrieval of information for check –and-balance purposes.

Also, you need a filing system for receipts, invoices and other records of business transactions. All these tools are necessary to effectively manage your cash flow.

Remember that the way you manage your cash flow will affect your business decisions.

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