It can only take one or two late payments from customers to turn a business’s positive cash flow into a negative one. Maintaining positive cash flow can be a struggle for many businesses, but setting realistic goals for cash flow management can help make a business profitable and generate enough cash to offset monthly expenses. Below are three cash flow goals every small business should be aiming for:
Pay attention to margins: Even though margins vary by industry, there are things an owner can do to ensure theirs is healthy. Controlling the cost of materials, labour, and setting the right price point are three ways of managing a business’s margins.
Have finances in reserve: Business owners should plan to have enough cash to cover at least two to four weeks of business expenses. It is always a good idea to aim for a cushion of 90 days to cover any emergencies like illness, natural disasters or market fluctuations.
Avoid debt: It may be an obvious one, but owners with debt need to try and pay it off as quickly as possible. A good option to do this is lines of credit. A line of credit is different from a loan. It is an amount of money that an owner can borrow when needed, and pay back when it is no longer needed. Owners can use it as a fallback option if there are unexpected cash flow issues.