Keeping a positive cash flow is one of the most important facets of running a business, especially if you experience seasonal dips in revenue opportunities. For example, restaurants with outdoor seating may be packed during warmer months. But as the colder months kick in, sales may start to taper a bit. Cold, rainy weather may keep people indoors instead of venturing out, and ice and snow each play a factor. Therefore, it is important to track your cash flow on a monthly basis so you can look for seasonal dips and be better prepared for them.
Let’s start with what cash flow actually means. It’s defined as the net amount of cash that is moving in and out of your business during a given period, usually each month. The money you use for operational expenses such as payroll, overhead, vendor bills, and other costs should be covered by monthly sales, but can also be supplemented by any savings you may have put aside.
To track your cash flow, determine how much cash you have on hand at the beginning of each month. Then look at how much cash came in versus how much went out. Keep in mind that anything billed or invoiced during a particular month that doesn’t get paid until the next month should not be included for the current month. Once you have your data, subtract the outflows from the inflows and compare that number with the balance from the beginning of the month. If that number is higher, you had positive cash flow that month.
Why is this information important? As mentioned earlier, knowing where cyclical dips will potentially occur during the year can help you better prepare for them. It can also let you know when you may have surpluses so you can put away for those lulls. Having that data available also makes it easier to get a loan if you need one to cover bad months.
At 504 Capital Corporation, we can offer advice on ways to indirectly improve your cash flow by using Small Business Administration (SBA) loans. For example, you can use an SBA loan to purchase your building if you are currently leasing, or refinance your current mortgage to a better rate and term, thus potentially lowering your monthly mortgage payments. Come talk with us about your options.