Cash flow – the lifeblood of any business. The aim of any business owner is to have more cash coming in than is going out. You’re in business to make money, and one of the most effective ways of doing this is to examine your cash flow and look for ways to improve it.
You’ll almost always find there are things you can do to improve your cash flow, from shortening your cash cycles to managing debt. The idea is for you to get on top of your cash flow because it means greater freedom and opportunities to grow your business. A healthy cash flow means you’ll have more working capital to reinvest in your business and sustain its competitive edge.
It’s important to understand what kind of cycle your business is on. For instance, are you like a hairdresser, that sees cash coming in daily, or are you more like an orchardist, on a seasonal cycle that sees fluctuating sales during winter and summer?
What you don’t want are lengthy periods of time when your business goes without cash. They can lead to all sorts of problems from paying your creditors to keeping operations going. So you need to find ways to shorten your cash cycles, and we’ve got some tips for you:
Once you’ve got to grips with your business cycle, and with your cash flow, it’s time to learn how to improve it.
Before you do anything else, you need to know how much working capital you need either to right the ship or to take your business where you want to. If you can’t measure your progress, you’re less likely to succeed in your goals, so carry out a costs analysis and use break-even calculations to establish what needs to be achieved and by when.
When it comes to how to improve your cash flow, consider some of these tried-and-true methods:
What it all boils down to is common sense. You’re looking to find ways to have more cash coming into your business than going out. However, if you’ve reviewed your business and found that these tips aren’t having much effect, it’s probably time to talk to your accountant or bank manager about ways to bring your cash flow problems into line.
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