The benefits of having good cash flow management
The cash flow statements are a bunch of data that help an organisation to run smoothly. The main benefits of this cash flow are listed below
Why cash flow is important
One of the most common reasons cited as why businesses fail is poor cash flow management. If your business constantly spends more than it earns, you have a cash flow problem.
For small businesses, the most important aspect of cash flow management is avoiding extended cash shortages, caused by an overly large gap between cash inflows and outflows. You won’t be able to stay in business if you can’t pay your bills for an extended period of time.
The benefits of
good cash flow management
If you’re wondering what you can do to keep your business ticking along without borrowing money (or even worse running out altogether) then look no further than good cash flow management.
Cash flow is the lifeblood of startups and small enterprises and it’s easy to see why. Cash is what allows your business to survive. Without adequate money coming through the door, you won’t be able to cover your monthly expenses or even consider expanding your business.
As Clive Lewis, head of enterprise at the Institute of Chartered Accountants in England and Wales, says, “there is an old maxim that no business ever collapsed because of lack of profitability but many have gone under because they lacked cash. Managing your cash resources and making sure you have enough to meet your needs, such as paying wages, buying supplies and meeting your personal financial requirements, is absolutely critical.”
But good cash flow management isn’t just about having a constant stream of money coming in. It also enables you to future-proof your business. Here are some other benefits of good cash flow management.
YOU WON’T RUN OUT OF CASH
No doubt this is the biggest advantage of good cash flow management. Managing your cash flow well will let you predict how much money you’ll be bringing into your business and ensure that it’s always more than you’ll need to spend.
YOU CAN PAY YOUR STAFF ON TIME
Your employees are the “frontliners”, who help you keep your business running, and more often than not good staff are hard to find. Therefore, paying your staff on time is not only the right thing to do, but it also makes good business sense.
With good cash flow management, you’ll never have to worry about whether you can pay your staff on time as you will be able to regularly set aside cash for their remuneration.
YOU’LL HAVE PEACE OF MIND
There’s nothing more stressful than running out of money. Fortunately, with good cash flow management, you’ll worry less about making ends meet because you’ll have enough money in the bank to meet all your obligations.
Increased stress levels aren’t good for a busy entrepreneur like yourself. Not only can it affect the way you run your business but it can also have a detrimental effect on your staff and customers. Being in a positive cash flow position means you’ll be able to run your business more effectively and concentrate on more of the fun stuff.
YOU CAN AVOID OVERSPENDING
If you don’t have a good cash flow management plan in place, you will find yourself guessing how much money you need to spend for each payable. This usually results in overspending or worse – using cash you have reserved for something else.
Managing your cash flow effectively will give you greater control over your cash. Your spending will be contained and you can guarantee you will have enough cash reserves to use in case of unexpected expenses.
YOU CAN GROW YOUR BUSINESS
For most startup and small business owners, there is only one thing they want to see: their business thriving. An effective cash flow management plan will prevent you from running out of money so you can always say yes to growth opportunities.
Effectively managing your cash flow is the key to your business’s success. By implementing a smart cash flow management strategy you will be able to address any shortfalls immediately, set up your business for future growth, and have peace of mind that you will always be able to pay your bills on time.
Not sure how to manage your cash flow properly and ensure you have a positive financial position? Here are some quick tips we’ve put together just for you:
1. Perform a regular cash flow forecast – estimate how much profit you’ll be bringing in and how much money you will spend.
2. Save the cash you have on hand. Before purchasing anything, always ask yourself first: do I really need it?
3. Maintain cash reserves to cover unexpected expenses or shortfalls.
4. Improve your account receivables by making sure your customers pay you on time.
5. Automate your invoicing to prevent delayed payments.
6. Boost your sales to guarantee you always have more money coming in than going out.
7. Keep the money coming in by offering different payment methods.
8. Always pay close attention to your daily ordering activities. That will give you essential information that could help you predict future sales.
9. Consider offering shorter payment terms.
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