Cash is the lifeblood that flows through your business. Without capital, it is impossible for your business to ever grow. Cash flow problems can halt production, damage business operations and negatively impact the lives of your employees. For your business to survive and grow it is essential that business owners learn how to avoid cash flow problems.
What is Cash Flow?
The term cash flow refers to the net amount of cash, or cash-equivalents being transferred into and out of a business. Positive cash flow means that there is more money coming into a business than there is leaving. Successfully managing your cash flow involves getting to a position where the amounts leaving and entering the business are of equal value, or there is a positive cash flow. According to research, cash flow issues are the reason why 82% of American companies fail, showing cash flow to be a vital focus, no matter what industry you are operating in.
Hire an Expert
There is one common solution that can help any busines to avoid cash flow problems, which is hiring an expert. Consulting with a wealth management firm will help you with investment management and financial planning, to ensure that your business never suffers from cash flow problems.
Keep an Emergency Fund
No matter how successfully your business is operating, you never know what might be around the corner. It is always wise for a business to keep an emergency fund which can be used in case of any unexpected damages, delays in payments or loss of market share.
Manage Your Inventory Well
The amount you invest in your inventory will directly affect your cash flow. Dead inventory (stock which has not been sold for the last twelve months) will be damaging to your inventory turnover ratio, tying up a substantial amount of capital. Take your time to calculate your inventory turnover ratio, so you can determine the effects of inventory returns on your cash flow. Analyze your inventory data to identify the fastest moving products to ensure your future inventory investments will offer the highest returns.
Focus on Accurate Forecasting
Accurate and effective cash flow management depends upon reliable sales and expenditure forecasting. Track the predicted return on investment of all of your products or services and compare these to your sales figures. If the product has not realized the high return on investment that was predicted, you should act quickly to secure cash flow. Accurate forecasting will enable you to make more informed business decisions, now and in the future. Forecasting ROI will also provide you with a clear benchmark which will motivate safeguarding actions when predictions are not met.
Pay Staff Monthly
Paying staff on a weekly or biweekly basis can make managing cash flow very difficult. Paying staff weekly puts a big strain on cash flow as accountancy teams have to regularly find available funds. To ease the cash flow burden, pay staff monthly. Alternatively, if you would prefer to pay staff more frequently, encourage customers to pay more quickly to ease the cash flow burden.