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Cash is king, especially in business. Managing business cash flow well is the difference between thriving and surviving. In fact, poor cash flow is a top reason small businesses fail. This isn’t just about profit; it’s about having enough cash on hand to cover expenses and use opportunities.
Poor cash flow can cause struggles even with high sales. Managing cash flow requires discipline and planning. The below covers essential cash flow strategies and actions to improve your business’s financial health.
Understanding Cash Flow
Cash flow is the movement of money in and out of your business. It’s not the same as profit. Profit is revenue minus expenses.
Cash flow tracks actual cash on hand. You could be profitable but still lack the cash to meet payroll or buy inventory if payments are delayed.
Why is Managing Business Cash Flow Important?
Think of cash flow as your business’s heartbeat. Healthy cash flow lets you invest in growth, handle emergencies, and cover expenses like rent and payroll. It allows you to confidently make business decisions.
Without it, you’re constantly putting out financial fires. Effective cash flow management keeps your business running smoothly.
It helps put you in a position to take new opportunities and achieve a positive cash flow.
How to Manage Business Cash Flow Effectively
Managing cash flow isn’t just about avoiding debt; it requires vigilance and analyzing your company’s cash flow. Create a realistic budget that shows income and expenses. Update this budget frequently to reflect changes in your cash balance.
Creating a Cash Flow Forecast
A cash flow forecast predicts money flow over a specific time, like a month or quarter. Forecasting helps you anticipate cash shortfalls and adjust spending.
Consider seasonality and update projections based on your business’s financial and sales trends. This can help your business strategy and help you better understand your finances.
By having a solid backup plan, you will be less likely to end up in a cash flow crisis.
Optimizing Revenue Streams
Improving cash flow involves optimizing revenue. Explore strategies like early payment discounts. Shorten payment terms, from 90 days to 30 days for instance.
Invoice clients quickly upon project completion, using invoicing software if helpful. Diversify your offerings or clients to reduce dependence on a few customers. This improves your net cash and accounts receivable.
Managing Expenses
Effective cash flow management requires smart expense management. Regularly review subscriptions, raw materials, and other costs to reduce expenses and improve cash flow.
Use expense trackers to organize receipts and provide reports. Renegotiate contracts and lease instead of buying when practical.
Streamline operations for greater team efficiency and reduce cash outflows.
Leverage Reward Programs Like RewardPay For Supplier Payments
RewardPay is a service that lets you pay the IRD, ACC and other business bills like suppliers, landlords and contractors with an Amex credit card, even if suppliers don’t accept the card.
Each time you pay a business expense with your Amex you earn points that can be redeemed for travel or other rewards.
RewardPay essentially acts as a ‘middleman’ between a business and the third party they are paying. It accepts the Amex payment for a small processing fee (to the payer) and then pays the receiving party (supplier) directly.
More than simply boosting your rewards balance, RewardPay can also help free up cash flow. By using their Amex, RewardPay members can take advantage of up to 55-days interest-free credit to manage their cash flow, meaning they don’t need to access a traditional line of credit or bank overdraft.
For small and medium-sized business owners, this is so important because cash flow is the number one thing SMEs worry about and have to deal with all the time.
Seeking External Funding
If you are experiencing increased cash outlay and short-term needs are difficult, explore external funding options. Research short-term business loans or lines of credit.
These can help cover immediate cash flow issues like late payments or an unexpected increase in the cost of raw materials. Consider business credit cards as a way to improve your working capital.
Crowdfunding is a newer funding option to consider. It helps by generating buzz with passionate supporters.
Be sure to thoroughly research all financial solutions, such as taking out personal loans, before committing. Securing additional investment, like using savings accounts or other types of cash reserve, improves working capital.
Monitoring and Adjusting Your Strategy
Even with a growing business, constantly monitor cash flow. Review your budget and adjust for unforeseen events or changing consumer behavior.
Review your financial statements quarterly. Make adjustments to your strategy as needed to ensure your projections are accurate based on growth patterns. This helps you manage your cash flow, learn your business’s cash position and manage your accounts payable.
Seek independent financial advice to improve cash flow management. Adapting proactively helps navigate the changing markets.
Having a handle on cash flow helps you through financial challenges. Understanding financial statements can also help you receive payments and ensure sufficient cash inflows to offset outflows. Be prepared and maintain adequate reserve cash, especially if increased sales necessitate a corresponding increased cash outlay for production. Keeping a close watch on accounts receivable can also help avoid potential issues early on. You also might consider a business insurance plan.
Managing cash flow effectively is crucial for businesses at any stage. It directly affects your overall success. You must understand cash flow.
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