Proper cash flow management is one of the most important parts of keeping a business running smoothly and successfully in the long run.
Whether you’re a small startup or a well-established business, being able to effectively manage your cash flow will help ensure that your company is able to cover expenses, invest in corporate growth and ultimately, keep your business financially healthy.
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The Best Ways to Handle Cashflow with a Business Bank Account
The most important parts of handling cashflow are about keeping track of things and planning accordingly, but it’s a little bit more complicated than that.
Here are some of the best ways to manage cashflow in a business bank account.
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Keep Personal and Business Finances Separate
One of the most simple ways to make handling cashflow easier is to separate your business finances from your personal finances. This will help you simplify the accounting process while also helping you monitor your company’s financial situation.
Having a dedicated business bank account allows you to track all your business-related expenses and income. In the long run, this will make it significantly easier to understand your company’s cashflow patterns and make data-driven financial decisions.
Constantly Monitor Cash Flow
Always keep an eye on your finances – this means monitoring your cashflow on a daily or weekly basis. If you do this, you’ll be able to avoid having any big issues, and if there are problems that arise, you’ll be able to catch them before they escalate.
If you’re always properly monitoring your cashflow, you’ll have a very good idea of when payments are due, when to expect expenses and generally speaking, you’ll have a good idea of whether or not your business is in a good financial position.
By doing this, you’ll be able to predict and forecast potential shortages (or surpluses) which will allow you to take action.
Be Aware of and Plan for Seasonal Changes
While every industry is different, it’s not uncommon for businesses to experience fluctuations in cash flow based on he season. This is especially relevant for retailers or those working in the hospitality industry, for instance, who tend to see high revenue during the holiday season and slow periods in the months that follow.
It’s up to you to identify your own business’s trends so that you can properly prepare for cash shortages during slow periods. The best thing to do is to make use of your business account so that you can build up a cash reserve when things are good so that when times are tough, you’ll have a bit of a buffer.
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Make Use of Digital Tools
Most banks will offer you the use of digital tools that you can use to make managing cash flow a whole lot easier. This could include things like:
- Setting up automated payments
- Receive alerts for long balances/pending payments
- Monitor transactions
- Receive reports on spending patterns
These days, there are also plenty of different types of accounting software that can be synced with your business account so that you can automate data entry, generate cash flow statements and categorise your expenses, among other things.
Prioritise Payment Terms with Vendors and Customers
One of the best things you can do is properly manage payment terms with both your customers and vendors in order to properly balance and keep track of cashflow.
When it comes to customers, it’s almost always a good idea to try and enforce shorter payment terms and send invoices promptly so that you can receive payments as quickly as possible. It’s also a good idea to offer incentives for customers to do so, including things like discounts for early payments or, on the other hand, financial penalties for missing payments.
For vendors, you should make a concerted effort to negotiate favourable payment terms. By doing things like extending payment terms, you’ll be able to properly align any and all outgoing expenses with incoming revenue so that you can keep your cash flow nice and smooth.
Always Have a Cash Buffer
It may be easier said than done, but if you’re in a position to keep some money aside as a buffer, you’re sure to thank yourself later. You never know when unforeseen expenses may pop up , and whether they stem from equipment failures, emergency repairs or a sudden downturn in business, you can’t possibly predict everything that’ll happen.
It’s normally a good idea to try to have enough funds set aside to cover at least three to six months’ worth of business operating expenses. If you have this, you’ll be able to deal with unexpected costs without having to take out expensive loans or unfavourable lines of credit.
Consider Financing Options
If your financial forecast shows a likelihood of financial shortfalls, don’t be afraid to consider financing options. Lots of business bank accounts offer lines of credit or overdraft protection which allows you to quickly and easily access funds whenever you need them.
Invoice financing and loans can also be a good way to bridge cash flow gaps, you just need to be cautious about getting into too much debt. A little bit is okay, but make sure you’re on top of things and have a solid plan to repay it properly and timeously.
Conduct Regular Reviews of Your Cashflow Strategy
Conditions are constantly changing, and if you want your business to survive, you need to be adaptable too. That means that regular reviews and adjustments of cash flow strategy are absolutely essential in helping you stay proactive.
Make sure you’re taking the time to assess your cash flow each quarter to ensure that it’s meeting your standards, and if not, make the necessary adjustments.
