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Cash flow is essential to the success of a business. If you have money coming in, but you can’t cover your current costs, you won’t be able to keep going. It is essential to understand and manage your cash flow so that you can always cover your costs. 

 

Pay Attention to Cash Flow

Your profits are essential, but some make the mistake of focusing all of their energy on this projection. You need to pay close attention to your cash flow. Look at how much you have on hand, what comes in each month, and how much you need. You need to make sure that your cash flow will cover payroll, expenses, and inventory, or you will not have a business long enough to get to those profits. 

 

Keep a Cash Reserve

You should always ensure that you have a cash reserve that you can reach into when cash flow is at a standstill. This will allow you to make sure that you can continue operating through the more difficult times. Determine how much your monthly operating costs are, and put aside three times that much if possible. If you dip into it, replace it when you can. This will help to make sure that you have a healthy cash flow. 

 

Collect Your Receivables Immediately

Ensure that you mark any invoices as “due immediately” and do not let people wait a month to pay for your goods and services. If you do, you will end up chasing after them as you cannot spend some of your expenses. Find ways to get customers to pay more quickly. When you lack certainty as to when you will be paid, it can hurt your cash flow. You can offer discounts to customers who pay the same day. 

 

Try to Extend Your Payables

Although you should bring in your receivables right away, work with your suppliers to extend your payables to 60 days or more if you can. This gives you wiggle room if cash flow is tight or if you are waiting for a customer to pay their account.