Cash flow is of critical importance to the health of any business. Below are some relevant steps which can be used to adopt debt control, increase savings and begin to build long-term wealth, by ensuring you have great cash flow management.
Firstly: Understand the components!
Cash flow is the steadiness of all your money which streams in and out of your company. Consider the 5 simple attributes below which build these traits:
- Your main inflow of money will usually be made up from sales.
- New economic injections provide a cash flow boost.
- Payments flowing out are used primarily for expenditure (take into consideration all of your overheads).
- Tax and VAT are regular installments which usually tend to be paid in large lump sums. Monitor these closely to avoid penalties for non-payment.
- Ensure you provide your owners, shareholders and financiers a return on investment.
Then: Plan ahead!
For cash flow forecasting the more warning you have for highs and lows of what’s to come in the next day, week, month or year, the sooner you can strategise. Accounting software such as Quickbooks or Kashflow, and make it easier to prepare budgets and revenue forecasts for times ahead. Revise budgets detailing your level of sales margins in line with profit intake and evaluate costs involved to keep them maintained. Allow for variables as your monthly outcomes may not be exact due to weekly fluctuations.
Once mastered: Start applying!
Monitor concrete performance against your budget / cash flow regularly; the closer you guard these, the closer you can foresee problems and can act quickly. Prior to accepting any bulky financial commitments, including large orders, check that your cash flow can accommodate all costs. Keep close relationships with your sales manager to formulate a system which identifies pitfalls before they happen, use the forecasting you have already integrated.
Almost there: Welcome the barracks that is your sales and marketing!
Today’s sales will always hold hands with tomorrow's cash flow. Being a savvy entrepreneur will mean being able to naturally evaluate whether to increase one product or service’s price, and how this may reduce sales tomorrow. However, this can later generate high cash flow stimulations on a longer term basis, if done correctly. When negotiating sales contracts with clients always focus on the benefits of the contract to your own cash flow. Get into the habit of being conscious to your invoices; a great way to cover your trail with archived conformation.
Finally: Control your expenditure!
Shop around to gain knowledge into international or local competitor pricing. Evaluate that segment of your cash flow and establish the impact your expenditure will have on supply quantity. Implement a cost control system and widen this to touch on all corners of your business; as an entrepreneur you should be keen to identify cost savings. Stock control can publish substantial rewards in your cash flow summary. Revert back to these first steps and apply the formula to provide return for investment and keep a healthier cash flow.