How to manage cash flow effortlessly for your business?
How to manage cash flow effortlessly for your business?

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Date: 02 Jun 2021


How to manage cash flow effortlessly for your business?

Cash flow is considered the King when it comes to the financial well-being of a business. It becomes even more significant when the business we are running is a small or medium enterprise. Whether the business is already established, still struggling to make a mark, or growing profoundly, effective cash flow management is essential. It is widely considered the key to business survival by many. According to a statistic, nearly 30% of new businesses run out of cash within the first few years of their inception due to poor cash flow management. Using up a lot of the working capital will make us attain a cash crisis where we would not pay the suppliers, pay our employees, or even buy the essential raw materials needed. 

 

Cash crunch occurs because of the delay of time between the moment we have to pay our employees or suppliers and the time we acquire money from the customers. Instead of segregating it according to the needs, it gets messed up somewhere in the middle, and the only way to fix it is through proper cash flow management. That is why it is vital to sustaining a degree of working capital in the business that will allow us to make it through those difficult times and continue to operate the business smoothly. In simple terms, cash flow management indicates delaying in outlays of cash long-drawn-out while reassuring your customers to pay it instantly.
 

How is a good cash flow different from a profit?

We should always know when our business will become profitable, not because it can affect our cash flow (because it would not), but it can give us an early goal to look for and a ready-made target for inferring future cash flow. On the other hand, negative cash flow along with negative profits can turn out disastrous for business. Therefore, we need to shift our efforts to manage the cash flow to reach that moment when we realize our first profits. All in all, a breakeven analysis needs to be done by gathering data about all our income and expenses.

It isn't easy to control what we cannot measure. For finding out the amount of working capital of the business, we first need to do some severe questioning such as-

  • How much cash is stuck?
  • How much payment is overdue?
  • How long will it take from paying the suppliers to collecting money from customers?
  • How many directories do we need to hold?

With the help of accountants and a few accounting software and spreadsheets, we can anticipate the inflows and outflows of cash over the course of time.
 

What are the steps to fix irregular cash flow in our business?

Suppose we have been a little careless regarding the monitoring of our business's money. In that case, the following 7 Cash Flow management Steps might help us boost the business's cash flow to run it smoothly without facing any turbulence.

1. Cutting unnecessary costs
2. Cash in on assets
3. Monitoring the cash flow regularly
4. Getting a business line of credit before we need one
5. Leasing instead of buying it
6. Getting paid faster by using mobile payment solutions
7. Speedy payments by offering exciting deals

 

  1. Cutting unnecessary costs: We tend to focus on our recurring monthly, quarterly, or annual expenses and find ways to cut back on unnecessary utilities, rent, or payments. We need to check if we are spending money on subscriptions or services that we aren't even using or insurance we no longer need. We can quickly renegotiate the terms of outstanding loans or leases.

  2. Cash in on assets: Selling unnecessary equipment or inventory that is no longer in use, we can consider selling and generating quick cash.

  3. Monitoring the cash flow regularly: We can use online accounting software that would make it simple to check our accounts and generate reports. In addition, as our information is already up secured, we can easily stay on top of our cash flow as quickly as it gets.

  4. Getting a business line of credit before we need one: A business line of credit is a good insurance policy when the problem of cash flow arrives. For example, we may be able to get a line of credit for a percentage of our accounts receivable or use them as collateral.

  5. Leasing instead of buying it: Instead of buying, we can lease vehicles, computers, and other business equipment; we can access the latest features and lease out the place or setting. Again, this will help us avoid spending the cash.

  6. Getting paid faster by using mobile payment solutions: If we sell products or provide services at customers' homes or offices, we can get paid on the spot with the help of smartphones or tablets that feature mobile apps which will accept payment by credit and debit card.

  7. Speedy payments by offering exciting deals: We can consider offering our customers incentives for early payments. But we do need to do the math early on to make sure we aren't spending more by giving incentives. All in all, there needs to be a profit as it's not worth the loss.

In a nutshell, running a small business with tight capital is not easy. But, for the betterment of overall business, a regular influx of cash cannot be stressed enough. Cutting unnecessary expenses and inducing cash back into the business at regular intervals make the whole process of running a business smooth and flexible.