Cash flow management refers to the tracking of how much money is coming into or leaving your business.
This allows you to predict how much money your business will have in the future. This helps you determine how much money your company needs to pay debts like suppliers and employees.
Cash flow refers to the change in money that your business has from one place to another. Cash flow management involves keeping track of the flow and analyzing any changes. This allows you to spot trends and plan for the future. It also helps you address any cash flow problems.
Cash flow management is important to ensure your business has enough money to continue to operate.
Monitoring, analyzing, and optimizing cash receipts, minus cash expenses, can be defined as cash flow management. Net cash flow is the measure of financial health.
At its most basic, it simply means delaying cash outlays as long as possible and encouraging those who owe you money to pay them as quickly as possible.
How to Manage Cash Flow?
You are being measured by your profitability
Make sure that your business is making a profit.If your business fundamentals are not in order, even the best cash flow management will not help.
To determine if each product or service is performing well, you need to analyze it individually.You should ensure that your products are priced correctly and eliminate inefficiencies.Instead of chasing sales, you should aim to generate more money.
Do a cash flow projection
Next, create a cash flow projection of the next year.This will give you an early warning of cash flow problems.To calculate expected monthly cash outflows and inflows, use an Excel spreadsheet or accounting program.
The projection can be used to predict slow periods and to plan ahead what you will do about them.A famous quote says “Throughout the year, compare your cash position against your projection to determine how you are doing. If there are any discrepancies, deal with them promptly.”
Instead of spending cash, finance big purchases
Cash flow errors include using cash to purchase a long-term asset instead of borrowing.Even though you might feel financially secure right now, cash flow problems can occur if your revenue is suddenly low or you experience rapid growth.
Cash flow projections are a great way to plan for your financing needs before they become a problem. The loan term should be equal to the purchase price.
Accelerate cash flow
You can reduce your credit card costs by getting money to your business faster.Tips: Ask customers to pay electronically, send invoices faster and charge interest for slow-payers.
In a pinch, raise cash quickly
Are you facing an unexpected cash flow crunch then you can raise cash quickly using various techniques:
- Ask your bank for assistance
- Check your inventory to determine what assets and stock you might be able to sell, even at a discounted price.
- Ask suppliers and landlords for additional time to pay your bills
- Offer your customers a huge discount to increase sales quickly
