Positive cash flow is great for businesses – it represents your company’s financial health and the ability to face challenges ahead. It also indicates that you’re doing well. But how do businesses maintain positive cash flow? Cash flow is the lifeblood of any organization, regardless of its size. It is a sign of a healthy business and a vital ingredient for growth.
Having cash reserves can also help a company deal with unexpected expenses or outgoings that may come up during a month, without the need to rely on credit or borrowing. Cash flow is the net amount of money that comes into and goes out of business. It is basically the amount of cash a business has at the start of a particular period and at the end of it. If the end figure is higher, the company is considered cash flow positive.
If it’s lower, it’s considered cash flow negative. Positive cash flow is a great sign for any business; it means assets are increasing, workers can be paid, debts can be cleared, capital for growth is available and the business is equipped to weather future financial challenges.
Keep the cash flowing
There are a number of things a business can do to ensure positive cash flow. Depending on the type of business you run, it may be worthwhile to offer incentives to clients for prompt payment. Whether it’s the entire amount or just a portion of it, receiving payments quickly not only improves cash flow but also cuts out the frustration of waiting for the money to come in.
To facilitate this, make sure invoices are sent out promptly, as this is more likely to result in quicker repayment. Beyond just cash flow, repeat business is vital for the health of a business. Using incentives such as discounts and loyalty bonuses will also keep your customers coming back.
Watch your expenses
Naturally, staff will incur expenses in the course of their job. From travel to hospitality-related expenses, these can quickly add up and cause issues when the time comes to reimburse them. To make sure you are not caught off guard by expense claims at the end of the month, keep track of them at all times and be prepared to cut down on them if necessary.
Use technology to stay on top
Staying on top of your business’ cash flow requires an accounting software that’s specifically designed to track cash flow. Software that offers real-time cash flow data and is customizable to show what’s important to your business will help with budgeting and managing cash flow.
Keeping an accurate account of what is coming in and going out, as well as the expected or projected cash flow, allows you to know how healthy your business is. It also helps you identify how much is available to spend so that you don’t veer into negative territory.
While cutting costs associated with manufacturing, downsizing staff or raising prices will have a positive impact on cash flow, it isn’t sustainable in the long run. Only by managing your finances and keeping an eye on cash flow will a business be able to thrive.