You’ll find most experts agree on one single thing in business: cash is king. While many metrics gauge the health of a business, few make or break a business as quickly as poor cash flow management.
Picture this: a thriving company with a steady stream of income suddenly faces bankruptcy. Sounds impossible, right? Wrong. Sadly, this is the reality for many businesses that overlook the pivotal role of cash flow.
At its core, cash flow represents the movement of money in and out of your business. It’s distinct from profit, which is what remains after expenses are subtracted from revenue. You might be making a profit on paper, but if your cash isn’t flowing efficiently, your business could be in trouble.
So how do you survive in business? Regularly track your cash flow. From ensuring that salaries are paid on time to procuring essential supplies, cash flow needs to be the lifeblood of your business.
A thriving cash flow often signals a healthy business. But here’s the kicker: even profitable businesses can have cash flow hiccups sometimes. When the inflow of cash doesn’t match the outflow, alarms should be ringing, but those alarms can only sound if they’re being monitored.
What are the implications if you don’t track cash flow?
Those couple of missed payments can snowball into larger debts. If you don’t have the cash to reinvest, growth opportunities could slip right through your fingers. Moreover, a tarnished reputation among suppliers and clients could be the final nail in the coffin.
On the flip side, mastering cash flow can unlock benefits. Ready cash can be a bargaining chip in negotiations so that you can secure discounts and stellar deals. It reduces the burden of borrowing, and stakeholders, from your employees to your suppliers, will undoubtedly appreciate the stability it brings.
Tips for your cashflow
We have a whole guide on our resources page that you can download but read on for some valuable tips to keep that cash river flowing.
- Invoice your customers on time – seems counterintuitive, but sometimes as business owners we get stuck in the doing and forget that we haven’t done key things such as bill for the work we have done.
- Chase up payments – turn on automatic reminders in your accounting system. You would be surprised at how much of a difference this makes to you receiving your invoices promptly.
- Scrutinize expenses – cut out the fluff. You don’t need all of those subscriptions, be ruthless.
- Emergency fund – so that you can weather any disturbances to your cash flow.
- Offering flexible payment terms to clients or rewards for early settlements.
- Check in on your cash balances and forecasts frequently – think fortnightly.
We’re living in a digital age, and there are so many tools at your disposal. Modern accounting software can be a lifesaver, automating cash flow tracking. If you don’t already have a killer accountant at the helm of your business they are worth their weight in gold – we might be biased here. Contact our office today if you need a hand with understanding those numbers and understanding your cash flow.