The Importance of Cash FlowThe importance of cash flow to your business is something that shouldn't be left to chance. So what is cash flow? How do you go about calculating cash flow and how do you improve cash flow to your business. The importance of Cash Flow to your business should not be under-estimated. For your business to survive you must have enough cash coming in to cover your operating costs. You will need enough working capital to cover both your fixed and variable expenses. Your expenses will also include any staff entitlements and any monthly loan repayments. You will also need to have enough in reserve to purchase stock or for raw materials if you produce your own products.
A lot of new business owners underestimate the importance of cash flow. Many mistakenly believe that if they are making sales then all is ok. Never underestimate the importance of cash flow to your business. It is not enough to make plenty of sales. Sustaining good cash flow requires a delicate balancing act...... When calculating cash flow figures always look for how to improve cash flow to your business. For example if you offer credit terms to your customers you can offer a discount (as a percentage of the total invoice) for payment by the due date. Account customers who purchase high priced items or who buy in large volumes often feel that this is enough of a saving for them and you will find that many will become quicker payers. (As small business owners themselves they will appreciate the savings). Calculating Cash FlowIt is essential that you closely monitor your business cash flow. You need to ensure that you have enough money to pay your bills when they fall due. You need to be aware of;
How to Improve Cash FlowIf there are peaks and troughs in your industry then your cash flow projections and expectations should be adjusted accordingly. You will need to consider your situation carefully. Always ensure that you know your market trends. You need to minimize costs and maximize profits during these down times.Many businesses arrange a bank overdraft and 'draw down' on this facility as needed. You will need to be able to prove to the bank that you have the ability to repay any loans. Most banks will require security over assets and they will want to see proven sales figures. This is often difficult for new businesses as they do not have any trading figures. You should consider any loans very carefully. You do not want to take out a loan that you are later incapable of paying back! from Importance of Cash Flow to How to Start a Business home page
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If you are providing a service then you also want to be paid for your time. It is not enough to be making huge volumes of sales. You must be paid for these sales in a timely fashion, otherwise your cash flow, and ultimately your business, will suffer.
