Nothing is more frustrating than wanting or needing something and not knowing if you have the money to get it. When it comes to business management, it can be catastrophic. And that is not an exaggeration. If you aren’t in control of your cash flow, your business could be one step away from disaster.
What is Cash Flow?
Cash flow is the amount of cash or cash equivalent that your business receives or pays out. It is more than knowing how much you have in the bank, but understanding your income-generating activities and your operating costs. Your aim should be to be in a positive cash flow position and increasing liquid assets, so you have funds available to meet obligations, reinvest in the business, pay expenses and provide a financial buffer for the times where cash-out exceeds cash-in.
Why it’s essential to pay close attention to cash flow
Quite simply, your business can not run without it. If you do not pay close attention, funds going out can quickly overtake funds coming in and you only find out when the money runs out. Even profitable businesses can struggle with cash flow occasionally, so the more you understand the likely peaks and troughs and are closely watching the situation, the better you will be prepared to deal with it before it really damages your operation.
How effective cash flow maintenance can contribute to your small business success
Paying attention to cash flow can help you avoid bad investments and see you able to forecast where you may need additional support or short term funding to ride the negative cash flow periods. If you have a history and can demonstrate that negative cash flows are forecast, you can plan for these times and avoid seeking additional funding. If you do require support, you will already have the information to hand to guide how much and historical evidence to back up your request and demonstrate your ability to pay.
Effective cash flow management is a significant part of good business management. If you lack cash, it is easy to lose control of finances and find essential bills go unpaid. You may still have good sales figures but find yourself unable to pay suppliers and buy more stock if you aren’t fully maintaining a healthy cash flow. If you want your business to succeed, you must look at the overall picture, not just the sales figures.
Our business in a Box’ and start-up guides can give you all you need in an easy to understand format to help with everything you need to succeed, so why not chat with us today.