Good cash management involves:
- Knowing when, where, and how your cash needs will occur – having a yearly cash flow budget divided into realistic monthly time periods and categories is imperative.
- Developing both short-term (weekly, monthly) cash flow projections to help you manage daily cash, and long-term (annual, 3-5 year) cash flow projections to help you develop the necessary capital strategy to meet your business needs will ensure your practice is sustainable. If available, historical cash flow statements will be extremely useful to assist you to understand how you used money in the past.
- Use appropriate sources of finance for financial needs – do not use short term cash flow [e.g bank overdraft] to purchase a vehicle when a 3 to 5 year financing agreement is more appropriate.
- Retaining creditworthiness – keeping good relationships with bankers, suppliers and other creditors.
It will do a business owner no harm to bear in mind that well known phrase – “Turnover is vanity, profit is sanity but cash flow is reality!”