We understand that cash flow is the lifeblood of any business. If you're concerned about your business' cash flow - you're not alone. Many business owners face this challenge, especially during times of economic uncertainty.
Most small businesses encounter a cash flow challenge at one time or another. Fortunately, most cash flow problems can be prevented with a bit of preparation and the right strategy. In this blog, we uncover a few ideas to help you to get sorted!
So what exactly is cash flow and why is it important
Technically speaking, it’s the movement of funds in and out of your business. It’s necessary for daily operations, taxes, purchasing inventory, and paying your people and operating costs.
Whether you’re a one-wo(man) band or the CEO of a major corporation, the cause of cash flow problems are the same, however, if you can learn to spot trends and anticipate a cash flow crunch, the more time you have to take action and hopefully stop it from happening or having as big of an impact on your operations.
So how do you anticipate problems?
Make a cash flow forecast
As they say, cash is king and it’s essential to have a plan for when there are lulls. Any number of problems can cause cash flow issues, such as low profits or (worse) losses, high staff costs, too much stock, overtrading, or lulls caused by seasonal demand.
Knowing these dangers will help you develop an effective cash flow forecast and maintain a healthy business cash flow.
You need to make sure that you have the cash flow needed to pay the bills or make investments in your growth – whether that’s staff, production costs, or buying assets.
Create a short-term cash flow plan
Once you have a cash flow forecast sorted with goals to focus on, you can put a short-term cash flow plan in place.
This requires getting down to the granular level of your business, and looking at its outlook for the next 90 days. It’s about assessing from daily, weekly and monthly perspectives how much money you have and need to run the business.
So what are the benefits of a cash flow plan
- You are in control. You know where every dollar is coming from, and where every dollar is going.
- You will be more confident. A lot of this comes from knowing who you have to pay (accounts payable), and who is going to pay you (accounts receivable), in the next 90 days.
- You are prepared for the worst. Even the best businesses have cash flow lulls. There are an endless number of reasons why cash flow can dry up periodically, but the owners who see them coming have the advantage of being able to manage those periods, either by ramping up sales over that time or tightening expenses.
Do you need help to properly keep a close eye on your cash flow?
The bottom line is that your business's cash flow needs to be managed effectively in order for your business to thrive.
It’s the lifeblood of your business. And it’s also one of the most important measures of the success of your business.
While it's vital to have a clear picture of your income and outgoings in order to stay in control, cash flow forecasting and management is not everyone's strength, and that's ok!
When you work with RightWay, you will have access to a team of expert business advisors, bookkeepers, and accountants, who can help you to forecast and manage your cash flow. We can help you identify areas for improvement, and develop a strategy to increase your revenue and manage your expenses.