Cash Flow Importance
Why is cash flow so important for a business? A simple answer to this question is, without proper cash management no business can survive and resultantly leads to trouble with creditors and ultimately in bankruptcy. Therefore, it is safe to say that cash is the lifeblood of a business. A very popular saying is “cash is king” in every business.
It is important for a business to understand the requirement of its cash flow which allow in making wise investments and protecting the company’s future growth. How do you know that you have enough cash to survive? Some of the strategies can be utilized to manage cash includes monitoring daily cash position, utilizing proper accounting techniques for receivable and payables, budgeting, cash forecasting, preparing monthly or even weekly cash flow for medium to large size businesses.
A well planned cash flow management will help a business to:
- – Maintain its liquidity to pay its debts and payable
- – Comply with bank covenants
- – Helping during the downturn time
- – No positive cash flow for several months
- – Receivables are over 60, 90 days
- – Payables are over 60+ days
- – Unable to pay yourself
- – Borrowing against credit cards
- – Inventory levels are going up
- – Dipping into your retirement savings plan to overcome the cash shortages
- – Home refinancing to meet routine expenses
Tips to improve cash flow
- – Maintain your books regularly, invest in a proper accounting system
- – Utilize net 30 days option to pay your bills
- – Invoice regularly and collect them faster or offer some discount incentives so customers pay your bill faster
- – Maintain your inventory, don’t invest too much cash unless there is a strategic reason for that
- – Check your prices, a proper pricing strategy can be adopted to make sure that you are maintaining your sales
- – Strategically evaluate renting vs. leasing and/or buying vs. manufacturing options.
Most small businesses close their business doors after one year because they failed to manage or implement a proper cash management system.
CNC can help you to evaluate your cash-flow needs and implement a strategy to manage your cash flow effectively and efficiently which is critical for your business survival and growth.