Not everything that matters can be measured. But Cash Flow can be measured – and it matters.
The first thing you should do to improve your cash flow is make sure you are measuring and monitoring your cash balances – your cash on hand – frequently. How frequently? That depends on the urgency of your cash flow improvement needs and the speed of cash turnover throughout your business.
Do you only have a few – or a few dozen – clients and they pay you monthly and you never have issues with cash on hand? Great – get cash on hand reports weekly or bi-weekly.
Do you have hundreds or thousands of clients and cash flows in and out nearly every working day and you’re sometimes worried that the outflows will exceed cash on hand? Then you will want those cash on hand reports daily.
Odds are your business falls somewhere in between. Getting started just needs a couple of decisions from you:
- What frequency of monitoring will give you sufficient advance warning of upcoming challenges?
- In addition to current bank balances in the Cash On Hand report, what else do you need to see with the same frequency?
We’ve seen stable, profitable clients who manage receivables very well who only need to see the bank balance values, and only need to see them semi-monthly.
But the faster a business is growing – or the smaller the profit margin in the business – the more likely it is that they need bank balances daily, and they also need to see a summary of expected inflows and outflows over the next one or two weeks.
Whether you need the high-growth or low margin version, you are fine with the stable profitable version, or you need something in between, make sure you take this key first step to improving your cash flow: you have a clear picture on a regular basis of where your Cash On Hand stands today.