Improper management of cash flow will strangle your business.
Q: Can you give me some ideas on how to manage the cash flow in my business?
A: Know your numbers.
- Follow some key metrics
- To manage cash you need to know the key metrics for your business
- Watch them closely
- As a PM I always knew projected monthly billings and costs
- Project them, track them and adjust for them
- What are the 7 key metrics for contractors
- Project monthly billings
- Project monthly project costs
- Projected project gross margins – Project Billings minus Project Costs
- Overhead burn rate – how much it costs to keep the lights on
- Average Accounts Receivables aging time – the average time from invoice to cash in the bank
- Sales cycle – the average time from estimate to actual billings
- Use the numbers to adjust and plan your business
- Make projections for the upcoming months / year
- Track the actual versus projections
- Use the results to adjust accordingly
- Increase billings and decrease cost to make adjustments