How To Keep An Eye On Your Cash Flow?

Business owners often neglect cash flow without realising its importance. There are businesses that fail to survive because of poor cash flow management. Although it does not take a large chunk of your business’ financial aspect, it will still have a negative effect once you do not pay serious attention to it. Bookkeepers and business owners need to work hand in hand to maintain a balanced cash flow.

There are two kinds of cash flow: negative cash flow and positive cash flow. Negative cash flow occurs when incoming cash is less than the outflow of cash. This only means something is wrong with the way you handle your cash flow. Positive cash flow occurs when the cash flowing into your business is greater than the amount of cash leaving your business such as salaries, monthly expenses and accounts payable.

It is also interesting to note that profit does not necessarily equate to cash flow. There are other financial figures that must be factored in before cash flow can be obtained such as inventory, accounts payable, capital expenditures and debt service. When it comes to cash flow management, a business owner needs to be focused on the drivers of cash. It is not enough that you concentrate on profit or loss because you also have to know what happens to your cash.

However, a business will not generate profits without a positive cash flow. You need to have enough cash so you can pay your suppliers and employees. A positive cash flow will only occur if you structure your business. Structuring your business will involve planning in advance and making sure that you avoid unnecessary spending.

Ways To Improve Your Cash Flow

Collect receivables:  receiving and processing your receivables can still be improved when you ask customers to preauthorise checks. This way banks will have the ability to draw against their accounts following timed intervals. It will also be a good move if you ask your customers to pay using depository transfer checks as this is a cheaper type of fund transfer. Another way to encourage timely payments is giving discounts to those who were able to pay their bills quickly.

Tighten credit requirements: although it is common for most businesses to extend credit to their customers, it is also necessary to determine the risk of extending credit. You may need to take a few things into consideration such as their ability to repay the money they owed. Check some references and accept credit cards. Although it may cost you a percentage, it is still a safer bet for getting timely payments.

Increase sales: attracting more customers is an effective way of getting more cash. However, there might be some challenges in selling your goods but you can make more sales by selling cheaper goods to existing customers.

Tamara Deterding

Written by : Tamara Deterding