Managing Cash Flow
Adequately managing cash flow is something any business must do to be successful, no matter how big or small your business is. Knowing exactly where money is coming in and going out is essential. Without a clear understanding, you will not be able to pay those who keep your business afloat - namely, your creditors, employees, and suppliers. And that will sink your business in no time, not to mention your credibility.
Below are some ways to effectively manage cash flow:
Perform a cash flow analysis.
Make a cash flow statement.
Create a cash flow budget
On the other hand, by doing a budget, you may realize that you may have an excess another month. When you know about a surplus, you can apply it to improving an area in your cash flow that hasn't been as productive. This will help you avoid a cash flow gap that would require you to borrow more.
The first step in creating a cash flow budget is to make a sales forecast. One way to get this forecast is to use the previous year's sales. While it may not be exact, it is a starting point.
Next, figure out your cash inflow. As with the sales forecast, a way to figure out the cash you'll be receiving is by using the previous year's receipts.
Third, figure out where you will be spending your cash in the months to come. These expenses may include payroll, operating expenses, inventory, etc.As with the other parts of the budget, you may not come up with an exact amount, but the estimate will serve its purpose.
Finally, put the numbers together by subtracting the cash outflow from the inflow. If the number is positive, you have a cash surplus for the projected period. However, if the number is negative, you will need to figure out a way to narrow the cash flow gap. This can be done by cutting costs or by getting a loan. While finding a cash flow gap is not a desired result, keep in mind that it is better to know in advance than to be caught unaware and unprepared.
Through regular management and planning, you will be in more control of your business' cash flow.By doing so, you increase your business' security, narrow cash flow gaps, and open yourself for more success and higher profits.