No business can sustain longer if it is unable to manage their finances in a better way. Be it a small sized firm or a large scale enterprise, managing the cash flow is equally important for all, and for most of the business, it plays a key role in the growth.
If you end up using the major part of your working capital, chances are that you may face problems during the time such as payment suppliers, buying materials, and even paying salaries to your employees. An increase in the time gap between the time you get to pay to your suppliers and the time you receive payment from your customers can pose a great problem for your business. Therefore, managing the cash flow should always be your main concern.
Now let us take time to better understand the concept of cash flow and then proceed further to what can be done to manage it in a better way.
What is exactly cash flow?
Basically, cash flow is the total amount of money coming in and going out of the business. Most of the businesses track their cash flow on either weekly basis or monthly. Generally, there are two types of cash flow:
- Positive cash flow– This refers to the cash flow when the total amount of money coming in as through sales, accounts, payment received is more than the amount of money going out through amount payables, business expenses, employees’ salaries, etc.
- Negative Cash flow– This refers to the cash flow when the total amount of money being spent by your business is more than the amount of money being earned by your business. Well, this is definitely not good for your business. However, there are certain ways that you can follow to avoid getting into this zone.
Tips to better manage your cash flow
Evaluating Cash Flow
Try to prepare a chart of your cash flow on either quarterly or monthly basis, and if you are really struggling with the management of your cash flow, then you can go for a weekly basis. A good cash flow chart will help you to know the financial system of your business better and will alert you if any trouble arrives.
Reducing time of the receivables
If you reduce the time of the payment you receive for your service or product, then there is a negligible chance that you will face any cash flow problems. Well, this is very unlikely to happen, but you can still manage your cash flow in a better way. Try to increase the speed by which you convert the supplies and materials into finished products, inventory into receivables, and then receivables into payments.
Maintain a separate bank account for your business.
One of the most common mistakes done by most of the business, especially startups is that they end up mixing their personal bank accounts with their business accounts. Well, this can bring trouble in the future; therefore it is better to have a separate bank account for your business.
Predicting the shortfalls
A time will come when your business will face a financial crisis, but that doesn’t mean that you are an utter failure as businessmen, it’s just that you too are a human and it is not possible for you to predict every outcome. Therefore, it is necessary that you prepare yourself during such a situation. Going to the bank before the shortfall is better than going after it has happened.
Wrapping up all, better management of cash flow caters maximum opportunity for the business owners to stay on the path of growth and also provides much-needed flexibility.