Cash Flow Management is one of the most important components of the success of any business. Profits are meaningless without cash. If you don’t compare the amount of cash flowing in with the amount flowing out the business may face a serious bankruptcy.
An enterprise that does not practice cash management may have to borrow money to keep itself in function. Cash problem is the biggest cause of failure of any business. It’s like fuel that keeps the engine of the vehicle running.
The following article will help you to have a sound knowledge of cash flow stategies & basics and its impact on profits and tips to improve your cash flow.
What is Cash Flow Management?
Cash flow is the movement of money in and out of your business. You need to track this flow either on weekly, monthly or quarterly.
Types of Cash Flow
1.Positive Cash Flow
Cash coming from sales and accounts receivable is more than the cash you are paying through account payable, employee salaries and monthly expenses etc. then it is termed as positive cash flow.
2.Negative Cash Flow
Contrary to positive cash flow if cash flowing out is greater than cash coming in calls negative cash flow. This is the condition that brings trouble to the business.
There are measures you can take to avoid this situation and generate more cash to maintain your business by cutting down your unnecessary expenses.
How to Control Cash Flow?
To keep your cash flow under control track your results every month regularly to estimate that management is generating a cash flow according to its needs.
There are just two points you need to keep in your mind to analyze your cash flow.
- Your company’s total finance right now
- Your company’s finance after six months from now
This will help you creating cash flow projections you can use to make your business decisions related to finance and investments.
How to improve Cash Flow Management?
Take the following steps to manage your cash flow in a better way, especially for the growing business:
1.Collect Receivables
Speed up your processing of receivable. Ask for pre-authorized checks from your customers so that you can draw money from their accounts at timed intervals.
Centralize your banking at a single bank. For a relatively cheap fund transfer ask customers to pay depositary checks.
2.Increase Sales
If you need quick cash, try to grab more customers or sell additional products or services to current customers. New customer acquisition takes time and money for a growing business but it is essential anyway.
Selling more to current customers is easy as they already engaged in your services; you don’t have to make extra efforts. If these sales are on credit then be careful because you are only increasing accounts receivable but not actual cash.
3.Securing Loans
Short-term cash flow problems sometimes make it happen for the business to take a loan. Equity loans and credit lines are types of short term loans. Another alternative is a long-term payback loan which consists of interest and principal till the loan is paid off.
