Do you understand you cash flow nitty-gritty?

Drinking coffee doesn’t pay the bills. Profit doesn’t either, but cash does.

 

Cash flow is the lifeblood of any business

A solid understanding of cash flow is incredibly important to smaller businesses and non-profit’s success. A solid understanding of cash flow is incredibly important to smaller businesses and non-profit organisation’s success.

According to various studies, over 80% of failures are attributed to cash flow issues. It is said that cash is king, and this is never truer than for smaller organisations as few people will want to become involved if there is a cash flow problem.

Cash flow refers to the revenues from all sources a business generates and collect compared to the money it has to pay out over a fixed period of time.

Run into cash flow problems, and you could be out of business, no matter how profitable you are or, how much backing you might have.  If you can’t see the answers, seek advice as soon as possible. Managing cash flow is not a hit and miss affair, and should not be managed by your hip-pocket nerve.

 

“Never take your eyes off the cash flow because it’s the lifeblood of business”. Richard Branson

 

It is said that cash is king, and this is never truer than when you are in business, as few people will want to become involved if there is a cash flow problem.

 

The benefits of positive cash flow

Being cash flow positive means that you’re bringing in more money than you are spending, and your business is in good shape. Being cash flow negative means that you are spending more than you have coming in, and you’re headed for trouble.

It is difficult to predict the future, particularly when it comes to any unforeseen expenses they might incur such as a machine breakdown, a bad debt, a new competitor, drought, or an economic downturn.

Positive cash flow is when you end up with more liquid cash on hand at the end of a given period compared to what was available when that period began.

When you have a positive cash flow you can:

  • Pay yourself and your employees. Positive cash flow ensures you and your employees get paid on time every
  • Pay your bills. It also gives you the funds you need to pay suppliers on time and take up any additional discounts for early or prompt
  • Invest in a new opportunity. When cash is readily available, you can invest in opportunities that arise and it allows you to be able to snap up bargains.
  • Become more creative and look at innovation. A positive cash flow opens up all sorts of possibilities as the people involved adopt a more positive attitude to the organisation.
  • Ride out the storms. Having access to cash means that whenever an unpredictable event happens you have the reserve cash to deal with it and survive.

 

Avoid negative cash flow

Negative cash flow is defined as not having enough cash on hand to pay immediate outstanding obligations. This could even mean, but not necessarily mean, you are trading insolvent and that is illegal.

When cash flow is negative, businesses struggle and find it very difficult to make a profit and even survive. Morale slips, repairs are not made, customers are not serviced correctly, people aren’t paid on time and the organisation quickly starts on a downward spiral to oblivion.

It is hard to be happy and enjoy your business if it has a poor cash flow. Wishing and hoping won’t fix it so take some positive action as soon as you can. If in doubt engage and advisor. 

 

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Personal Experience

If you think you have what it takes to be a understand and manage cash flow, and you want to improve your efforts. Take time to consider the attributes of an entrepreneur.

There is a long list of attributes of successful entrepreneurs, but you don’t need them all in order to have a big positive impact on your cash flow.

It is important to evaluate personally if you have what it takes to really manage and grow your cash flow. Take note of the entrepreneurial attributes, or characteristics, to discover what it takes and why. Of course, if you are in any doubt engage an advisor and start some new conversations about cash flow.

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