Do you think that sales increase, profit or loyalty of customers is the strength of a business? While all of these are important to the success and survival of your business, it should not be the only central focus. Yes, all three of these will help you during the survival of your business, but if you don’t have steady cash flow, your business will eventually flop. Remember, cash is needed to pay the utilities, employees and purchase inventory. Without it, you won’t be able to keep those doors open for long.
Available cash is necessary and crucial to every business. However, you have to be aware of where cash goes and how it comes into the business. If you don’t know any of these things, you will be lost to how your business is doing. There are specific skills to measuring, managing and monitoring your business’s cash flow. It is important to find out how your cash flow can work for you instead of against you. There are certain rules to abide by and you need to be aware of them.
Cash flow is not the same as making an income or your profit and loss statement. While these help you to analyze your business profitability and performance at different periods, cash flow, on the other hand will indicate how your money is being spent in and out of the business. Your balance sheet will also measure cash, but at a specific time period. A balance sheet will give you a snapshot of your progress while cash flow measurement provides an in-depth view.
What is Causing Cash Flow Issues?
In any business, the owner must be aware of the reasons for cash flow issues, which can happen during any business cycle. These issues will usually happen when you are spending money or earning a profit. To grow your business, you must invest in the right employees, office, inventory and equipment. For that reason, you may have to spend money. On the other hand, if you have slow paying clients, it puts a dent into your cash flow. Therefore, you have to be prepared for the inevitable in these cases. You must have a system where you can analyze your cash flow in each business cycle. This provides an important forecast of your business expenses as well as your sales. You should track your sales each month instead of on a quarterly basis because this will give you a better idea of what is going on in your business.
Create strategies to help with your cash flow. It is also important to reduce your fixed expenses. Contact your vendors and ask for a discount. When your business is doing well, see if you can do without hiring extra staff. Cash conservation is important to operating your business. Find ways to minimize the need for cash. Use bartering as a way to swap services so that you don’t have to use cash. Use credit card instead of cash when possible.
Be sure to create a business plan with a projection of your sales and expenses. This gives you an improved forecast of what to expect and keeps you in the loop. Lease equipment instead of buying. Grow your business smart and prepare for the growth.