Keep an eye on your cash flow

It’s surprising how many small business owners don’t really understand cash flow. That’s why they fall behind in paying their bills.

Cash flow does not mean profits. You can have decent profits and lousy cash flow. Cash flow is the cycle of money flowing into and out of your company. You need to know how long it takes to collect money owed to you versus how much you need to pay your bills on time. Unless you have a large amount of your own working capital to take up the slack, customers who pay late force you to pay late.

To maintain a decent credit rating — and avoid a financial melt-down — it’s vital to manage your cash flow. Watch out for a shrinking bank balance, declining sales volume, and inventory build-up. Any or all of these are warning signs that money is going out faster than it’s coming in. You have to take steps to get them in balance.

There are many possibilities, depending upon your situation:  increase sales, raise prices, improve collections, bill in installments, trim costs, decrease inventory, accept credit card and PayPal payments — or borrow money. Whatever you choose to do, don’t let cash flow get out of hand. Your first obligation as the boss is to keep the money flowing.

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