Cash flow refers to the balance available to you after allowing for all the statutory payments or any other payments that you need to make. This means that payments for all your receipts need to be cleared. The statutory payments that come under this are rent, payroll, taxes, supplier invoices, loan payments and asset purchases. Even a business that’s “good on paper” can suffer from negative cash flow.
Now the question is how can you avoid bad cash flow and reform the way your business works, read on to find out:
Plan Ahead: Assess the amount of money that you will spend in the entire financial year. Refer to the cash flow statements that you have prepared in the past to effectively assess the crests and troughs that you might have to face in the forthcoming year.
Keep track of financial trends so that you can predict and prepare for cash flow fluctuations. Being aware of such fluctuations in advance can help you withstand tight situations.
Define your cash cycle: In order to effectively project your cash flow, you need to examine how much cash flow is generated in each cycle. It is essential to determine how much of your resources are tied up in these cycles and explore options, if you feel that, the assets, where your money is stuck, are non-performing assets.
Determine the potential big expenditures: If you are looking to expand your business, it is important that you plan in advance. If you are planning to acquire expensive new equipment – PLAN! If your cash flow isn’t good enough, it might be a better idea to in fact lease or arrange for long term funding to ease the burden of major purchases. Overspending is never a good idea for a start-up.
Understand your expenditures: There are various kinds of payments that you need to make to sustain as a start-up. You need to understand what are your fixed and variable costs. For instance your taxes depend on your revenue and therefore they are variable costs.
You need to be able to assess them well so that you can improve on the returns for each. The inability to manage your cash flow can be financially disastrous for your business. It will eventually create a huge backlog in the bills that you will have to pay leading to negative growth which will be hard to overcome. Managing and protecting your cash flow is pivotal for a sustained and long-term success of your business.