Why is cash flow important?
‘Cash flow’ refers to money entering and leaving your company. Not having sufficient cash is one of the most significant factors in companies failing, even when they are trading profitably.
Poor cash flow is a business killer. According to a U.S. Bank study, 82% of small business failures are due to poor cash flow management. Cash flow is vital for a business of any level. Here are our business outsourcing team’s top 5 cash flow management tips to improve cash flow effectively.
Keep it simple. Keep it accurate.
Effective cash flow management can only be controlled if monitored and dealt with on a timely and straightforward basis. If this gets out of hand and isn’t updated regularly, you only make things hard for yourself. Having the correct team in place and using the proper software will help you manage your cash flow, report on key business metrics, and build a strong future for your business's aspirations.
Growth needs cash
Cash flow problems can strike at any time. However, typically, you are most at risk from cash flow difficulties when your business starts, when your customers fail to make payments as agreed and (almost surprisingly) during periods of growth. When you face cash flow problems, Impliementing effective cashflow strategies through these periods. You will better understand where you spend your money and cut unnecessary costs.
Poor Planning leads to poor performance when starting a new business.
When you start your company, there may be a lot of overheads and a small amount of money coming in. You might need to invest in equipment, materials, staff, training, premises or advertising. With an accurate cash flow analysis, you should have knowledge of your current available funds at any time and also be able to identify and plan for periods where there could be a shortfall.
Business growth is all about timing.
Even successful businesses can experience cash flow difficulties as they grow. If you plan to expand your business, effective cashflow management is critical. Ensure you have funds available for both regular and unexpected expenses. It's also essential to make sure you are expanding at the right time for your business. Growing and expanding your business is exciting; it means new markets, building your team, and more revenue.
However, growing your business often requires a lot of investment before you start to enjoy the benefits. It is vital that before you encounter a period of growth you ensure you have considered the management of your cash flow carefully to make sure you have sufficient funds to continue to operate effectively during this period.
Managing your cash flow
A key factor in managing your cash flow is ensuring you are paid for goods and services on time. Many businesses operate payment terms ranging from 30 to 90 days before invoices are paid.
Delays in getting paid are often the reason for cash flow difficulties, so it is important to always agree on payment terms that suit your circumstances. Companies should also consider anticipating payment delays. You should ideally ensure your own terms for payment are not greater than that of your suppliers to ensure you are not always in a position of net cash flow deficit.
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Effective cash flow management is vital for the health and success of your business. Implementing these cash flow management tips can help your business prepare for both everyday operations and periods of growth. If you’re looking to improve cash flow and secure the future of your business, Contact Moore South today if you are concerned about your business Cash flow. Our business outsourcing team can work with you to try to safeguard the future of your business