Cash Flow Management in Business

Cash flow is the lifeblood of your business. Rigour Mortis sets in when it stops moving. Poor cash flow is the reason for the business’s failure for financial reasons.

When it comes to the financial management of a growing firm, cash is king. The problem is the time lag between when you have to pay your suppliers and workers and when you receive from your customers; the solution is cash flow management. Cash flow management, at its most basic level, involves deferring cash outlays as long as possible while pushing anyone who owes you money to pay it as soon as possible.

What exactly is cash flow?

Cash flow is a measurement of how cash comes into and out of your business in a particular period of time. When your cash flow is positive, you have more money coming in than going out, allowing you to pay your bills and cover other expenses. You can’t afford to make those payments if your cash flow is negative. Working capital is the concept of having “enough money to meet your financial responsibilities.

What is Cash Flow Management?

When it comes to a company’s financial management, it’s commonly claimed that cash is king! Whether your company is expanding or struggling, correctly managing cash flow is critical, and for many, it is the key to survival. You’ve probably heard that over 60% of businesses that fail are still profitable but have simply run out of cash.

If you’ve depleted your working capital, you can find yourself in a cash crunch, unable to pay suppliers, purchase goods, or even pay salaries. The problem is the time gap between when you have to pay your suppliers and when you receive money from your consumers; the solution is cash flow management.

That’s why it’s vital to keep a level of working capital that helps you to go through those tough periods while still running the company. Simply put, cash flow management is deferring cash outlays as long as feasible while encouraging customers to pay their bills as soon as possible.

Let’s take a look at the basics of cash flow management before we get into the techniques for improving and managing cash flow in your business.

Best Practices for Managing Cash Flow

Improve the amount of cash coming in and decrease the amount of cash going out are the two basic tactics for improving cash flow. When faced with financial difficulties, some business owners turn to create a line of credit—and you don’t need us to tell you that this is a bad idea! Other good approaches for small enterprises to promote a healthy financial state are listed below.

#1 Determine how much money you’ll need to break even |

Before you can work toward a positive cash flow, you must first determine how much money you need to break even. You’re doing something well if you go above the break-even mark. If you frequently fall short of it, there’s a problem that needs to be addressed.

#2 Have a Cash Reserve for Emergencies |

Businesses should always maintain emergency cash reserves, just like people do. During economic downturns, this gives you some flexibility and security. A decent rule of thumb is to have enough money to last at least three to six months.

#3 Set Invoice Timelines and Terms |

Before taking on a new client or supplier, it’s critical to establish extremely explicit payment conditions in writing. Make careful timelines to specify when invoice payments are due, whether they are due immediately or within 15, 30, or 60 days.

We recommend that you request an initial payment for, particularly resource-intensive projects so that you have some cash on hand to meet necessary expenses. Then, if certain milestones or deliverables have been met, request the remainder of the payment.

#4 Encourage Easy, Early Payments |

An IOU from a customer is almost the same as not having any money. Encourage your consumers to pay early by offering special deals or discounts if they pay ahead of time, which will help you financially.

#5 Put Cash Flow over Profit |

The majority of individuals believe that profit is the key to entrepreneurship success. It’s all about how you handle your financial flow, though. Check your earnings versus your break-even point on a regular basis. If you earn more than that but still have money problems, you likely have a problem with your accounts payable, accounts receivable, or shortfalls.

#6 Assign Someone to Monitor Your Cash Flow |

Keeping track of your cash flow is essential for running a business, but it shouldn’t be your sole focus. Allow a trusted employee (or your accountant) to monitor your cash flow for you—just make sure you stay on top of the figures, especially if you’re going significantly over or under your break-even threshold.

#7 Upgrade from a Spreadsheet to Software |

To keep track of your financial flow, you had to physically record every transaction decade ago. You have the advantage of technology nowadays, so take advantage of it! To remain on top of your cash flow, store your spreadsheets in the cloud for easy access, or utilise accounting software.

#8 Drive Sales with Incentives or Promotions |

Promotions are a terrific approach to increase sales swiftly and efficiently. You may hold a contest, launch a client loyalty and referral programme, or use clever social media posts to generate buzz.

Incentives can also be used to manage the influx of employment. You don’t have to refuse down jobs if you have more than you can manage; offer a discount if the client is prepared to postpone the work. This not only allows you to juggle several projects without straining your resources, but it also ensures that you’ll have a consistent flow of income in the months ahead.

Clearing away your inventory might help you get your cash flow back on track. To sell products as quickly as possible, use discount sales and planned promotions.

#9 Delay or Reduce Your Expenses |

While increasing revenue is usually an excellent cash flow management approach, lowering costs might achieve the same objectives in a different method.

Whether you have a payment due soon, investigate if you may get a payment extension. Delay as long as you can, but even a few weeks or days can have a big influence on your cash flow. Hire part-time personnel to fill up the gaps in your staffing if you can’t afford full-time employees. If you have unwanted equipment, consider renting or leasing it out to save storage costs (and earn some extra cash). Look for alternative methods to boost your profit margins—lower supplier costs and higher prices are both good places to start.

#10 Clear out Your Inventory |

Clearing out your inventory might help you get your cash flow back on track. To sell products as quickly as possible, use discount sales and planned promotions.

Summing-up

Profits are meaningless without cash. Many a seemingly prosperous business has gone bankrupt because the quantity of money coming in does not match the amount of money going out. Firms that don’t manage their cash well may not be able to make the necessary investments to be competitive, or they may have to pay more to borrow money to stay afloat.

Not all of these strategies will work for every business, so choose the one that makes the most sense for your brand. And don’t be scared to combine multiple approaches—whatever it takes to get your cash flow up to speed. Do it successfully, and your company may be able to survive and thrive even in times of financial instability. If it still, don’t you need to contact Shergroup.

We help you find the best bookkeeper to take away the guesswork out of running your own business—for good. A bookkeeper does play a predominant role in keeping records and maintaining all the financial transactions of the firm, reconciling, and overseeing uncountable transactions and data of a firm. Finding that one perfect employee for the position can prove to be too much of a hassle. Here’s when Shergroup steps in and helps and assists you to find the appropriate bookkeepers who not only manages your financial matters but also plays numerous significant roles for your organization.

Even if you have unpaid invoices sitting in your files, we can help you out. Shergroup is a specialist in recovering B2B debt. Our focus is to assist businesses in getting paid faster and improving their operations while offering a professional and high-quality service that delivers value to our customers. Shergroup can add value to your business as an outsourced debt collection partner. We can help you keep your cash flowing. And you only pay us when we collect, so it’s No Win No Fee.

So, if you’re facing a challenge managing your cash flow, leave it to us. You do the business, while we provide you with our financial business services in no time.

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