Keep The Cash Flowing – The Value Of Positive Cash Flow

In order for any business to operate, you need money, either the capital that has been invested or the money received from sales and receivables. A few late payments or a couple of outstanding receivables may seem insignificant initially, but when they add up, they can quickly create a dent in your cash flow. Without cash on hand, a business may not be able to invest in its assets, such as new equipment, employees and inventory.

And that is why cash flow is often called the lifeblood of a business.

Cash flow projection

Cash flow projection is an important aspect for any cash flow management. An accurate cash flow projection can alert you about the impending trouble before it strikes. It acts like an early warning system. A cash flow forecast will show you how much cash your business owns and how you can use these resources. Business owners should develop both short-term and long-term cash flow projections to help them develop the necessary strategy to meet their business needs.

Positive cash flow

There are a number of things a business can do to ensure positive cash flow. Try not to take cheques, instead request customers to pay in cash or by credit card. If you are accepting cheques, deposit them as soon as possible. Run credit checks on all new non cash customers. Offer discounts to customers who pay their bills on time and extract damages from any invoice that has been neglected for long. Keep a good relationship with suppliers and vendors in case you need to extend a payment deadline. Take as many preventive measures as possible for the hidden costs or the unexpected and unanticipated costs that will affect your cash flow. Old equipments take up space and are inefficient. Dispose old, outdated inventory. The focus should be to improve the inventory-receivables turnover ratio which indicates that a company has efficiently collected money it is owed. Any improvements you can make to your business will ultimately lead to better cash flow.

Cash flow in various stages

During the startup phase of a business, it is normal to have negative operating cash flows. Since in the first few years the company will have many expenses and little revenue, there will likely be a few years of operating losses resulting in negative cash flows. The company will then start growing, maturing into an establishment with a place in the market and dependable customers. In this phase, it will start generating income and will use the resulting cash to continue investing in assets. However, these investments will be lesser than during the startup phase. Cash flow will start to improve as revenues help to cover ongoing expenses, finally ringing in profits, slowly and steadily.

A positive cash flow is a great sign for any business. It indicates that finances are looking up for a firm. It means your assets are increasing and capital for key needs is available; a confident sign that the business is equipped to ride out any future financial challenges.