Managing Cash Flow
It is easy to believe that profits should have the highest priority within any business
. Profits are great and show that the business is doing well with selling its products, however if the business cannot afford to pay its bills with extra profits leftover then there may be a problem. There has to be a system of checks and balances in order to effectively manage cash flows coming into and out of the business. Try thinking in terms of a check book with credit cash flows on one side and debit cash flows on the other. This will help separate what should be taken out from what is coming into the business. There could be issues that arise that are not accounted for that could affect some of the profits of the business. If suppliers have financial problems and could not get the direct amount ordered then the business could not have enough stock on hand for customer demands. They could also start demanding early payment from you, which could offset the business financial calculations. Likewise, if those who are in debt to the business for products or services cannot afford to pay or frequently miss payments this can cause problems when the business has its own bills to pay.The first step to adequately manage cash flows would be to create a budget. This budget will be a carefully planned out estimate of inflows and outflows for the business. By monitoring its progression, the business will be able to pinpoint where main sources of cash flows are, where potential cash flows could be made more efficient, and where cash flows are slower than usual. The most important element is to compare the budgeting results to the actual results to determine where cash flow deficiencies could arise, and how to better prepare the business for this type of constraint in the future. Be sure to plan ahead for future cash flow problems that could emerge unexpectedly. Try making payments, due to the business from others, have an earlier deadline. This will cause more cash on hand in cash financial issues appear and there is not enough money to go around. If the suppliers are demanding early payment, try renegotiating payment systems so that they can extend more products for longer periods, if payments are in total and on time.
One of the biggest accomplishments, yet biggest expenses, to a business is growth and expansion. When a business branches out into other sectors or creates other locations this demands a considerable amount of time and money. In the long run the expansion could generate more cash flow into the company, but before that could happen a large portion of cash flows out of the company could be required. Making sure the business is productive and profitable can have a great impact on the available funds necessary for growth. Careful cash flow analysis will provide the business with adequate information in order to make the ultimate decision if expansion is a good idea, or if the business should wait another year before consideration. Do not forget that along with building expenses there will be expenses for new employees, equipment, materials, etc. Cash flows need to be managed successfully in order to take advantage of growth opportunities without losing too much money in the process.
When cash flows are thoroughly managed and analyzed the business will always be aware of its financial structure. This can be a great asset to have when there are economic downturns. Having complete control over what is going into and out of the business can entice others to want to invest in the business' future. This can create even great cash flows into the business that can be used to offset any unwanted expenses.
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