Cash flow is one of the most critical aspects of managing a business, big or small. Without a good understanding of your business’ cash flow, your ability to plan for the future is virtually nonexistent. Beyond just understanding your cash flow, it’s also essential for the success of your business that you are able to maintain steady and consistent cash flow.
Many business owners struggle to master their cash flow, making a consistent inflow of cash seem like a pipe dream. However, there are tools and factors that can vastly improve your ability to control and understand your cash flow. Below we will take a brief look into the information on five factors that you can use to bring a consistent balance to your cash flow management, and for more information on how to apply these tools, you can join our Action Coach webinar on mastering cash flow today.
Before we can understand the importance of cash flow, we first need to explain what it is. Cash flow is simply the movement of funds in and out of your business each month. Cash comes into your business when customers buy goods and/or services. Cash flows out of your business when you pay expenses including rent, taxes, and loan payments.
To maintain a positive cash flow, there needs to be more money going into your business than going out. If there is more cash leaving your business than what it brings in, then it has a negative cash flow.
In fact, one of the biggest reasons small businesses fail is simply due to a lack of funds. You need to have a positive cash flow in order to pay your bills and keep your business open. A negative cash flow can lead to overdrawn accounts or the accumulation of debts that will later have to be repaid, another drain on your cash flow.
Cash flow can have a different impact on your business depending on the age of your business and your sales structure. While cash flow and cash flow management is important for all businesses, it is particularly important for young businesses and seasonal businesses.
Having a strong cash flow is the most crucial--and usually the most difficult--in the first six months of a business’s life. During this time, businesses have lots of expenses, but they may not have any customers yet. They may also find that creditors won’t lend to new businesses that haven’t yet proven their viability.
During this time, it is essential that you establish either a source of cash or a temporary line of credit.
Seasonal businesses are similar to new businesses in that they often start each season with considerable expenses and no cash flow into the business. Managing the cash flow of a seasonal business is particularly difficult and particularly important. In order to maintain a seasonal business, you need to be able to survive the large fluctuations in the flow of cash.
Understanding the importance of cash flow is one thing, but utilizing the tools available to you to maintain a steady cash flow is another skill entirely. At ActionCOACH RGV, we have developed a cash flow management plan that uses the following five factors to maintain and increase cash flow:
To learn more about how these 5 factors help you maintain a steady cash flow for your business, join our webinar today!
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