How Good Cash Flow Management Can Help Your Business

For a business, whether they are a start up business or an established business cash acts as their lifeline; it is the one aspect that allows a business to survive. The amount of cash that a business has at its disposal often demonstrates the health of a business. A business, especially a start-up business would be able to survive for a while without sales or profit but without cash it will fail.

In order to give your business the best possible chance you need to have sufficient control over the cash flow that is going into and out of your business. You obviously want to have more cash going into your business than out of your business but to ensure that this is the case you need to have a good grasp of the cashflow that your business has. You need to have a good idea of your cashflow if you are thinking about expanding or if you wish to borrow some extra money. To aid this estimate of your cashflow it is a good idea to keep your receipts as they will demonstrate examples of some of your expenditure.

An important aspect to remember is that there is a difference between cash and profit. In order for a business to make a profit it needs to produce and deliver goods or services to customers before you actually make a profit so if you don’t have the cash to do this then you technically won’t have a business left to run. If you want more evidence of these just look at the facts; the reason that most businesses fail is poor cash management that has led to a business not being able to afford to carry on and poor cash flow is the reason that the majority of start-up businesses don’t make it past their first year.

Some examples of the cashflow that will be coming into your business include the following:

o The payment for goods/services from your customers

o Any bank loans that you may have taken out

o The interest that you collect on savings and investments

o An increased bank overdraft or loan

Some examples of the cash that will be coming out of your business include the following:

o The purchase of any stock, raw materials or tools that your business needs

o Your staff wages, property rent and all of your daily operating expenses

o Any repayments of loans that your business may have

o Any dividend payments

o Income tax, corporation tax, VAT and other taxes

o Reduced overdraft facilities

In order to have a good cashflow within your business you need to ensure that your pattern of income and your business spending habits allows you to have cash available as well as being able to pay the bills on time. Cashflow depends on the timing and amounts of money flowing into and out of the business each week and month.

In order to help you with your cashflow management it is a good idea to keep an up-to-date record of all of your cash so that you can see exactly what is coming in and going out of your business. By doing this you can find ways of potentially improving the cashflow of your business.