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How to Manage Cash Flow

It would not be an exaggeration to say that the health of cash flow makes or breaks a business. It is for this reason that cash flow management is deemed one of the most important factors on which the ultimate success of a venture depends.

Cash flow keeps track of the movement of money from and within an organisation. It indicates the amount that is being used up for the growth of a business, the expenses that it incurs and also the liquid reserves that it holds.

Some argue that negative cash flow is not necessarily a bad thing for a business. But that is only true in the case of big companies that hold sufficient reserves to brace the impact of short term fluctuations and liabilities in their business.

A business can be profitable and also struggle with cash flow. If you have insufficient cash reserves that prevent you from running your business operations effectively, an unsecured business loan can go a long way in stabilising and expanding your business operations.

Below are ways in which businesses can manage cash flow in a more efficient manner:

Monitor Cash Flow Regularly

In order to stay on top of cash flow, a business is required to have an ever watchful eye on its balance sheet. By doing so, any variation or unhealthy pattern that could justify lack of growth can be identified and addressed immediately.

There are various ways in which a business can manage its cash flow on a regular basis. Depending on the availability of resources, a business can either outsource this task to an accounting firm or handle it themselves by making use of intelligent accounting software.

As a small business owner, it is possible that you may have to rely entirely software options in order to cut costs, unless you decide to make use of alternative finance that could in turn finance the essential operations of your business.

Lease Instead of Purchase

Most capital intensive businesses believe that they need an initial investment to buy the equipment to manufacture and provide their particular product or service. In this way, businesses end up spending a huge chunk of their cash reserve on buying equipment, which they could have easily accessed with a lease instead.

However, this is an expense that can be easily curtailed by leasing out equipment, rather than buying it. Making big purchases can lock up a significant amount of finance, which could be put to better use elsewhere.

Depending on their requirements, a company can utilise it for hire purchase, a full pay-out lease or an operating lease. If the equipment is bought on lease, a business can also claim it as an expense and save taxes. In this way, this option makes a significant sum of money available to SME’s.

Stay on Top of Invoicing

Most businesses make the mistake of waiting until all work has been completed or the product has been delivered, in order to start sending out invoices. However, by delaying the first step, the entire process can suffer a setback which may lead to a severe cash deficit at the end of the financial quarter.

Therefore it is important for businesses to stay a step ahead when it comes to sending the invoices to their respective customers. Also, the invoices should be designed in a straight forward way so that they are easy to read and understand.

Important points of information on the invoice, such as the total amount due, the due date and accepted methods of payment, should all be highlighted and clearly defined.

Make use of Assets

It is commonplace occurrence for businesses to buy assets and hold them as an investment to be used in difficult times. When a business begins to experience financial problems these assets that were locked away are sold to generate a positive cash flow.

However, selling assets may not be the only wise thing to do in difficult times. Our property finance enables business owners to hold onto their properties and use them as collateral.

With this option, an asset does not have to be sold to temporarily solve a growing problem. The asset is preserved for greater market appreciation and the financial issue will have been addressed.