Cash is the king of the business realm. It reigns supreme, but not all its subjects earn the much-needed royal favor. Bankruptcy and failure rates are still high in most countries and money problems are among top company killers. Indeed, it is quite surprising how many enterprises do not have a handle on the lifeblood of their operations, the money flows. This aspect encompasses the movement of funds in and out of your business and demands due diligence. You want to avoid getting hit where it most hurts, don’t you?
Two sides of the coin
Cash flow is the blood that keeps every company’s heart pumping. And as businesses mature, they are expected to come up with a surplus of profit. However, this comes neither easily nor as a natural course of events. Instead, it’s a constant and planned effort. This is to say that one must have a game plan in place, a financial statement that is as sound as a dollar. First of all, the flow of money must be tracked on a weekly, monthly, or quarterly basis.
A ballpark figure does not cut it: You need accurate gauges that help you discover whether you have a positive or negative cash flow. The ultimate mission is to make the amount of cash coming in comparable to the amount of it that is going out. Companies that struggle in this department cannot secure ample funds to finance expansion and growth or are forced to do it by borrowing money.
Now, notice that cash flow does not equal profit. This implies that managing cash flows is much more complex than taking a look at your profit and losses statement. You also have to grasp inventory, accounts receivable, accounts payable, capital expenditures as well as debt service. Good money management practice requires you to sort out all of these moving parts, which are the real drivers of cash.
Cover all the bases
Through it all, one must realize that peaks and valleys of income are one of the major disturbances. The prime goal is to smooth them out and make your income side more predictable. There are many strategies to go about this, including monthly subscriptions and prepaid payment discounts. Next, turn your attention to accounts payable as well and ensure that there are no loose ends in the form of fees and late charges.
Furthermore, it is of the utmost importance to harness the power of modern technology and streamline your money management. You have a large pool of free resources available online and they cover everything from accounting software packages and calculators to cash flow worksheets and statement templates. This way, you will be able to focus on core business aspects and also minimize the human error.
Likewise, you would be wise to address the issue of late-paying customers. You have the option to modify your credit terms or offer less credit. Also, try to prepare for the unexpected and safeguard your future by securing quality forensic accounting and litigation services. Finally, bear in mind that there are a plethora of ways to cut the operating costs and that most of them fly under our radar. For instance, many business owners and managers are not aware of the benefits of flexible work options such as telecommuting and shared offices.
Managing cash flows is pivotal to the success of any business organization. Poor performance is this area is responsible for more fizzles that ever before. Naturally, the amount of cash being funneled into your business should exceed the amount going out of it, but that does not come by chance. In order to snatch the Holy Grail of business, the positive cash flow, you must stay on top of the numbers game, plan ahead of time, and actively manage and analyze inflow and outflow of cash.