How to Manage Cash Flow

How to Manage Cash Flow
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We collected everything you need to know about how to develop Money Flow Management, from basic to small tips.

There is an old saying, “cash is king” about the business world, and if that’s the case, cash flow is the lifeblood of the kingdom. Cash flow is one of the most critical factors for small and medium-sized businesses. Profit without cash is meaningless. Most profitable businesses have gone bankrupt because they can’t balance cash and cash out. Companies that are not successful in cash management cannot make the necessary investments to enter the competition or have to borrow more in order to continue processing.

“Although cash flow is a business’s life, fuel, most business owners are incapable of managing cash flows.”

cash flow

Years of academic studies have shown that cash flow problems are the primary cause of corporate bankruptcy. In the 2009 global economic crisis, bankruptcies between millions of small businesses have increased by 71 percent. In a, nearly 80,000 new small businesses are opened each year, but according to a 2007 report, only two-thirds of them survive two years, 44 percent survive four years, and only 31 percent survive seven years. Academics say the reasons for the bankruptcy of small businesses are often lack of experience, poor position, poor inventory management and insufficient capital that accompanies excess investment in fixed values.

The following article will tell you the basic principles of cash flow, how it affects profits, and ways to improve your cash flow.

Basic Cash Flow

cash flow

What is cash flow? Cash flow is the name given to cash transactions in the enterprise in a certain period of time. You must follow the cash flow on a weekly, monthly or periodic basis. There are basically two types of cash flow:

• Positive cash flow: this is called when the cash in your business is more than the cash in your business through debts, monthly expenses, and salaries.


Negative cash flow: this is called the situation where the incoming cash is more than the incoming cash. This is usually the time when the danger bells ring for an enterprise, but there are many ways to correct this situation and collect more cash while reducing your expenses.

It is not a chance to enter cash. You must work for it. You must analyze your cash flow and regulations so that you can control cash entry and exit more effectively. It is vital that you analyze your cash flow every month so that you can meet your requirements for the next month. In addition, accounting software developed for small and medium enterprises such as QuickBooks can also generate cash flow statements. There are also websites like “parachute” that offer similar solutions.

Profit and cash flow

cash flow

Profit does not mean cash flow. You can’t understand your cash flow by looking at your profit and loss table. There are many factors that determine your cash flow: receivables, payables, inventory, capital expenditure, and debt management. Smart cash flow management requires attention to these elements as well as profit and loss. There is a secret that very few business owners know, which is that the profit or loss does not show what is in your cash. According to accounting rules, profit is income – expenses. Billing a customer for the products or services you sell creates revenue. The money you collect on that bill also creates cash.

You really need to have a positive cash vaccine to make a profit. First of all, you must have enough cash to pay to employees and suppliers to produce your products. By selling these products, you get positive cash flow. The higher your positive cash flow, the higher your profits. If you want your business to grow and your profits to increase, then you must have a business that will provide cash inflow.

“Expanding your business will force your cash flow. Because you have to make certain investments and expenditures. Maybe you want to open an office in a new city. Maybe you want to build a larger facility in order to sell to more customers. Both scenarios require cash.”

Improve Your Cash Flow

cash flow

Most business owners see growth as a solution to cash flow problems. So when they grow their businesses, they realize that cash flow problems are also growing. The growth plan and the cash costs associated with it are obvious in advance, so it wouldn’t surprise. In the meantime, especially the growing enterprises should follow the steps below to make better cash flow management:

• Collection of receivables – there are several different steps to speed up the collection process of invoices and receivables.

Offer locked box service. The mailbox services offered by banks allow customers in remote locations to deliver payments via mail and banks to process checks faster. Ask customers to pre-authorise checks so that banks can withdraw payments from customers ‘ accounts at certain time intervals.
Centralize your banking transactions in one bank. Ask customers to pay with bank transfer checks, which are a relatively convenient way to transfer money. You can also offer discounts and campaigns to customers who pay their bills faster.
• Tighten your credit requirements – businesses are forced to lend to their customers, especially when they are just starting or growing. However, you should do your research in advance to determine the risk of lending to each customer. Will they pay their bills on time? Is their business growing or falling? Are they having cash flow problems? You need to know the answers to these questions. Another way to give credit to customers in your business is to accept payment by credit card. This is one of the safest ways to get paid on time, even though it costs you 2 to 5 percent for each sale.

* Increase sales – if you need more cash, you don’t have to blow up a lot of heads, so what you need to do is sell more to existing customers or attract new customers. Winning new customers is essential for a growing business, but it may take extra time and money to sell prospective buyers. Selling to existing customers is Cheaper. You can do this by analyzing what customers are buying and why they are buying. Knowing the buying habits of customers will increase your profit margin and in return you will have more cash. However, we need to warn you at some point: if you are selling with credit, increasing your sales will increase your receivables rather than your cash.

• Pricing discounts – another way to increase your cash flow is to offer discounts to customers who pay early. This practice can affect your profit margin, but it can help manage your cash flow by pushing customers to pay sooner than typical billing cycles. Your company, suppliers and other people with debt can take advantage of this, but be careful not to cause a cash flow deficit of early payments.

• Borrowing – short-term cash flow problems may require an entity to borrow money from a financial institution. The possible types of this are revolving capital loans or business loans. Most of these loans reach their goal but in times of financial crisis, most banks stop lending and try to collect their debts. Another option is long-term depreciation borrowing, which includes interest and principal until the debt is paid.

Controlling Your Cash Flow

cash flow

1. What’s my cash balance right now?

2. What do I expect my cash balance to be six months from now?

“If you can’t answer these two questions, you have to be prepared for everything. You’re about to embark on a roller coaster ride that will scare you all the time. Because your cash flow is not under control.”

One of the ways to keep this under control is to track your cash flow every month to check whether your management provides the cash flow that your business needs. In this way, you start making cash flow forecasts that you can trust to make decisions and manage your invoices to grow your business.


Cash Flow Management Strategies For Small Businesses

Below are 6 strategies you can use to improve your company’s cash position. These strategies are not all the things to be applied in every business. However, by combining some of these strategies, each company can improve its cash position.Here is a 10 cash flow strategy:

1. Request deposit or interim work completion

cash flowRequesting deposit and interim payment from customers in companies where products and services require too much money and effort is one of the best ways to improve cash flow. Graphic designers, website designers, marketing companies and PR agencies work like this. Each customer may not want to make a deposit or make an occasional deposit. The only thing you can be sure of is that you can’t get what you don’t want. So encourage your customers to deposit. This may be the only way they can get a quality service or product.

2. Ask customers to accelerate payments

cash flow

Another option for cash flow management is to make customers pay faster. There may be many different ways this. The simplest way to do this is to give 2% dealership discounts on invoices paid within 10 days under conditions such as 2 / 10, net 20. Otherwise, the whole amount must be paid within 30 days. This will be interesting for customers because they will pay their bills faster and have a compound interest rate of 73 percent annually in only 10 days.

3. Reduce or delay expenses

cash flow

Another option is to delay spending when customers do not pay quickly. This strategy can have different forms ranging from business to business. While manufacturing companies prefer to reduce costs, a service provider may choose to spend less time on the same business. Companies must also complete their inventory before purchasing a new inventory or take part-time or contracted employees instead of full-time employees.

You also need to consider how your customers ‘ personal expenses will affect your business. If we consider that customers ‘ spending is personal, they may want to know which opportunities are cut off from their personal spending —indirectly as they pay for themselves, or directly as property owners. As a result, they may have to eat less outside, live a more modest life, or end up with a vacation. Among all the listed variables are the most control of business owners.

4. Request more appropriate payment terms than the dealership

cash flowDealers have more motivation to finance their customers ‘ spending because they value their customers. Having two extra weeks to pay will affect the subtle difference between the missing payroll and the growth. If your payment period is 15 days, ask for 30 days. Request 45 days in 30 days. Depending on your relationship with the dealership, you can convince at least a few of them to provide more appropriate payment terms. And be persistent! Maybe you’ve asked for more appropriate payment terms before, but you’ve been denied. You will not lose anything by asking again, you can either request the appropriate payment terms from the same dealer or another one. Of course, if you express your demands at an appropriate time and you are reliable, the other person will be more willing to comfort the conditions.

5. Finance purchase orders

cash flow

Financing purchase orders for manufacturing and trading companies that need large amounts of cash to carry out purchase orders may be the solution. After you receive the purchase order, you can obtain the product and inventory required by the finance company to fulfill the purchase order by paying to the dealer. In this way, you will be happy to buy a large order and not be able to sell because of the lack of cash required to buy inventory or materials.

6. Purchase or rent unused equipment

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If you’re having a shortage of cash, you have to put everything on the table. This is particularly true of equipment that is not used; you can sell or rent it to a company that will use it for cash. Even if you are using the equipment, you should consider that the same equipment can be rented much cheaper and that you can use the proceeds of sales to fund your business at intervals. This is especially true for long-lasting equipment that is easy to carry and install. If you have a storage center where you can store your equipment, you will be free of storage costs. Thanks to sites like Craigslist, you can rent equipment at a price that is much lower than its actual value.

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