How to Maximize Your Business’s Cash Flow
Cash slow is the life-blood of all growing business and it is the primary indicator of business health. In this economy understanding, monitoring and controlling cash flow is important. In a survey of small and medium sized enterprises on key challenges, not surprisingly cash slow was identified as their top area of concern.
Understand cash flow
Cash flow refers to the movement of money coming in and out of a business. It gives a picture of a business’s “liquidity”, or the ability to pay debts and purchase supplies.
Even though profit is the desired result, day-to-day management revolves around cash flow. Many failed business are actually profitable when they go out of business, but poor cash flow chokes their ability to operate
Monitoring cash flow
It is important to understand the cash flow cycle – cash you receive in revenue versus cash going out of expenditures. All businesses have expenditures for items such as rent, wages, or interest on loans. Some of these costs have to be paid monthly, some every three months or yearly based on agreements.
Some businesses do not receive revenue on a regular basis based on terms they have with customers or the nature of their business (e.g. landscaping companies tend to be busier in the warmer months). Without planning or preparing for difference in revenue versus expenditures, a business may run into cash slow problems.
Some tips to manage cash flow:
- Invoice promptly and follow-up an overdue invoices immediately
- Ask customers to pay cash for their purchases
- Consider cash discounts for early payment of invoices
- Shorten your average collection time
- Reduce your overhead
- Talk to a professional
For more information on managing your cash flow, speak to a professional.