Principles Of Cash Flow Management For Entrepreneurs
Cash flow is the amount of cash or cash equivalent that is transferred in and out of a business by means of payments. Cash flow can be positive where the business makes a profit, or if the difference is negative it means a loss has been made, and the business has less money coming in than moving out.
Checking your profits is a simple way to determine the financial state of your business, but understanding the financing and ways of improving your business’s cash flow is very different.
What is cash flow management? This is the perception of data including cash inflow and outflow, operating, investment, and financing activities, alongside inventory, debts, and anything else that’s related to driving your profits or losses.
See the principles of cash flow management for entrepreneurs here…
Why is cash flow management important?
Cash flow can be critical to the survival of your start-up, franchise, or small business. It’s so important as it allows you to see your current financial state, and if you have sufficient cash to pay expenses and bank loans, and to purchase new assets.
Managing resources is critical so that you don’t ever run out of cash, and you can pay your employees on time. Being in a positive cash flow situation will decrease stress levels as you are confident that you have enough money to meet all of your business obligations.
Performing a cash flow analysis regularly will help identify trends, and make it easier for you to realistically project your future cash situation to increase profits. There are several ways to ensure a positive financial position including:
- Avoiding overspending – managing cash flow effectively will give you greater cash control
- Growing your business – implementing a smart cash flow management strategy will set up your business for future growth
- Maintaining cash reserves – this allows you to cover unexpected shortfalls or expenses
- Automating invoicing – this will prevent any delayed or overdue payments as it makes it easier for customers to pay you
- Negotiating discounts with suppliers – building good relationships can benefit you with getting better deals
- Identifying where savings can be made on a daily basis – monitoring non-essential expenses, office supplies, and internet and phone services can help increase cash reserves
How does cash flow help the management in decision making?
When you’re able to present an accurate cash flow forecast it will:
- Show how well your business is doing in certain areas by providing a measured performance
- Indicate whether your business is in a position to buy new equipment or take on additional employees
- Allow the running of best and worst-case analyses to see how additional expenses affect your business
- Make the best decisions related to the future of your business
- Decide whether your business requires alternative funding – business funding that comes with lower repayments can provide you with a cash cushion
Why must entrepreneurs concentrate on effective cash flow management?
An effective cash flow management plan will allow you to pick up on things as early as possible, avoiding running out of money. This is vital for start-up and business owners as by understanding the data you can see exactly where you are succeeding, and take advantage of all potential growth opportunities.
Effective cash flow management is the key to helping your business work better.
Where can I get professional help?
A virtual Chief Financial Officer (CFO) will ensure your cash flow forecast is accurate and up-to-date. And you’ll be able to choose the timing – whether your requirements are for the following week, month, or year – whatever best suits your company. Managing your cash flow is all about monitoring and analysing how your cash flow changes over time. This will all be professionally done for you.