Managing Cash Flow
The Importance Of Cash Flow
To Your Business Success!
Managing Cash Flow
has been contributed by Tim Levchenko-Scott from
New-Zealand-Business-Finance.com
Managing cash flow is vitally important to the survival of your business. Thousands of businesses fold each year simply because they run out cash – and many of them are actually profitable when this happens !
Don’t be seduced into thinking that growth – particularly rapid growth – will solve your problems. In fact, it may very well make things worse, particularly if you are selling on credit. It is often a period of rapid growth which puts people out of business.
Even in a seemingly ‘small’ business, you can still be turning over relatively large amounts of money. A corner shop, a small contracting business, a café or bar, a trucking business, can all be turning over cash in the hundreds of thousands and even millions every year before they know it.
If you then experience a ‘cash-gap’ due to your debtor cycle, bad debts or investment in new staff, plant, etc; or if your expenses get out of line with your income; you can end up with a major cash hole in the middle of your business which could wipe you out.
So, it’s important to have systems in place to make sure this doesn’t happen to you. The key areas are:
Planning.
Information Systems.
Credit Management.
You’ve probably heard about the importance of planning in business from various sources before. Hopefully, you already have a written plan. I won’t go into planning in depth here, as there is a wealth of resources available on this. Suffice to say, that it is essential to successful business. What I will emphasise, though, is the importance of cash flow planning. If you regularly forecast your cash flow situation as well as your profits, you will have a good idea of where things are at and predict at what point you may have a cash flow squeeze. You can then work on how you will finance that situation.
Cash Flow Control
Having good information systems will help you keep your finger on what’s happening to the cash flow of your business. There are plenty of user friendly systems around these days for the small business person, so there is no excuse for not doing this. But don’t just rely on technology or your accountant or staff. It’s important that you have a handle on your cash situation at all times, even if you delegate some of the reporting or information gathering. If you’re the business owner, you are the one who has to make sure you can meet your obligations.
How To Improve Cash Flow
If you are selling on credit, it is essential to have good credit management systems in place.
This article explains the key points of a good credit management system.
If you experience cash flow difficulties due to unforeseen problems or rapid growth and need to access short term working capital, one option is
invoice discounting.
In this system, you sell some of your accounts receivable at a discount to accelerate your cash flow.
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