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There are a number of tasks that are essential to include in any small business cash flow management system. Some tasks are daily, some weekly, and some monthly. Defining who is responsible for the tasks and periodically checking that they are carried out is good management. Be proactive about how much cash you will need in the future.
To manage the cash flow of a business, within the day-to-day operation, it is essential to include the following tasks:
1. Prepare and review your Cash Flow Plan weekly. How much cash to start with, how much cash to come in, and how much cash to go out.
2. Reconcile your cash taken daily, including payments received from credit cards. Monitor your internal controls for cash handling. Have different people reconcile your bank accounts and cash accounts with those who deposit the checks and cash.
3. Review your profits and losses at least once a month. Prepare your P&L at home or have your accountant do it for you, but don’t wait too long. Accounting software packages like Quickbooks and MYOB are suitable for a variety of small businesses and are easy to set up to generate profit and loss reports.
4. Review your Balance Sheet monthly. Calculate your quick ratio (liquid assets divided by current liabilities) – it should be greater than 1 and your current ratio (assets divided by liabilities) – at least 2 to 1 is good.
5. Make sure any excess cash earns you interest and is also easily accessible.
6. Ask your bank for a line of credit before you need it
A small business owner can wear many hats in his business, however cash flow management is one area that the business owner should not delegate or ignore.
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