For business owners, one of the most important things to master is managing the flow of cash in and out of your business. Known as cash flow management, it’s a reflection of your business’ overall solvency – that is, your business is able to continue operating and running, and is able to fulfill its financial obligations in a timely manner. Of course, there are two sides.
What you want is to gain more of the positive cash flow. Your liquid assets should be steadily increasing, giving you the means to settle your business debts, give back to your shareholders, or even invest in other businesses. In other words, there’s more cash coming in than going out as expenses.
While audit public accountants can simplify cash flow management, here are other tips you can use to ensure balance on finances.
Understand that Cash Flow is NOT Profit
One of the fundamental reasons many businesses fail is they often equate cash flow with profit. Many have very elaborate targets on what their break-even points should be at any given point in time. However, they fail to take into consideration the need for an effective cash flow management right from day one of operations.
Be Efficient in Your Receivables
Sure you closed a multi-million dollar deal, but do you already have the money? Cash flows focus on completed transactions, meaning you need to have the actual payment before you can consider it as an inward flow of cash. Audit public accountants from Tannerco.com say you need to improve your system of receiving and processing receivables.
Be Selective in Your Credit Extensions
Most businesses, in order to facilitate the growth of its client base, will often extend credit to their customers. If you have to do this, make sure to tighten your credit requirements.
Increase Your Sales
It’s quite logical. Increasing your sales will increase the in-flow of cash. Just make sure you have an efficient system of tracking receivables as well.
Manage Your Payables
One way to obtain a positive cash flow is by managing the outward flow of cash. This essentially means managing your own account payables. Communicating with your vendors and suppliers will help in managing payables. Determining flexible payment options as well as discounts may also help.
Starting a business is tough. Maintaining it through its development stages is even tougher. By managing the inward and outward flow of invaluable cash, you can at least ensure the solvency of your business.