For those who have always wondered what is Cash flow and how we can efficiently run a business just by managing its cash flow correctly, here is a guide with tips on better cash flow management. Cash flow as the name explains is the total cash flowing in and out of a business.
Here is a guide with tips to avoid cash flow woes in your business:
1. Be proactive in forecasting your cash expenses:
This basically means keep a track and record of what is the basic income, expenses and small business loans (if any) over the month and have a forecast for it. For example, if you are incurring a total expense of Rs.5,000 per month; the total expense incurred over the year would be Rs.60,000 (12 months x Rs.5000 expense). This has given you a better idea of your financial situation and now you know what you can look forward if any unforeseen circumstance.
2. Create and stick to a timeline for receiving and making payments:
When you run a business, it is imperative for credit systems to be in place. A credit system means you deliver merchandise or service on credit to the customer and they pay you in a 30-60 day window from the bill date. This system works but not in all scenarios and circumstances. It is important to make sure you recover the money that is due to you as well as to make sure you repay the loaned money.Organize your books of accounts
All your books of accounts which include income, expenses, working capital loans, bills must be organized. It consists of keeping track of all the records of cash, goods, and services related to your business on a month to month basis. You can always hire an accountant/ CA who will take care of it. Keeping that up to date will always help you keep a track of every transaction flow.
3. Profit means nothing without a positive cash flow:
A lot of businesses show a profit on their balance sheet but it is meaningless without a positive cash flow or a functional working capital? Profitable businesses of all forms and sizes have fallen prey to this. The most important part is to note that this profit will then be invested to expand the business by predictive measures. Hence it is important to have a healthy cash flow.
4. Lenders are your business partners:
Always remember, due to unforeseen circumstances you might have to borrow money in any form. Therefore, it is imperative to always be on good terms with the lender as he one of the partners in your business and if the need is, can even help you setup or scale up your business in the smallest way through equipment financing, collateral free loans, and quick business loans etc.
5. Quick growth:
We all want quick results so we can run faster on the next lap. Sometimes, we are not ready. Growth is good but rapid growth can definitely be a reason for cash flow problems. For example, if you make bulk purchases for the year on a quick business loan which is collateral free too and also invest in new products without any arrangement for day to day expenses; you will land in a trap full of debts. It is always better to take it slow. It will keep you in line with your financial boundaries and you will definitely grow.
6. Maximize cash flows:
Always be on the lookout, you do not want any kind of cash flow trouble; look for different ways you can possibly reach out to bigger and better clients and present better business. Implement new models, collaborate and make sure you are always thinking of how to get more cash into place.
Follow these tips and you can be free from cash flow woes and can have a healthy working capital.