It is very important to have healthy cash flow system in your business, as cash is the life line of any business, hence the need to improve your businesses cash flow.
Cash is the life line of every business, and when your business has a good cash flow, the more likely the business would survive for the foreseeable future, however, on the other hand if your business has a poor cash flow it is more likely that the business would not be able to survive. It is imperative that in order to have a successful business you should identify ways of improving the cash flow of our business. In this article we would look at five ways that you can improve the cash flow of your business.
What is cash flow?
I would define cash flow as the rate at which cash comes in and goes out of a business for a given period. Having good cash flow is imperative for the success of your business as it allays any risk of break in operations due to insufficient cash available. Focusing on improving your businesses cash flow should be your number one goal in terms of ranking your priority. So the question is how do you improve your businesses cash flow?
How to improve your business cash flow?
Prepare a cash flow statement
A cash flow statement is a financial statement that shows the cash inflows and cash outflows as well as the net cash flow of the business for a given period of time.
Cash flow statements are very important financial statements as they give a fair idea on the amount of cash available to your business at any particular time. In order to have a good cash flow running in your business, you would need to the actual amount of cash that is available for the businesses operations and also which areas of the business consumes more of your cash, these can be achieved by preparing a cash flow statement. Your accountant should be able to prepare it for you.
Identify and manage your cash outflows
Knowing the areas of your business which takes out the cash is very important as you can re-adjust some of these areas in order to save some monies, however, you should make sure that the adjustments you make should not compromise your operations. Then again the cash flow statement comes to mind, as it helps you to identify expenses in your business which you can easily adjust. You should also look at managing your accounts payables in order to maximize the use of the cash available to you. You might consider delaying payments for a couple of days to your suppliers, but you should be cautious that the delay in payments does not disrupt the relationship with your suppliers.
Reduce accounts receivable days
Another way to improve the cash flow of your business is to consider reducing the accounts receivable days. Ideally customers who buy on credit should be given a maximum period of two weeks, as anything more than two weeks could put your company’s cash flow in danger. You should encourage customers to pay on time; giving discounts to customers who take lesser days to pay may just do the trick in reducing your accounts receivable days.
In order to have a good cash flow running in your business it is very important that you don’t ignore the possibility of increasing sales. A higher sale automatically means you having a better chance of improving your cash flow.
Encourage cash sales
The best sales for your business is cash sales, as it is healthier for your business than credit sales, hence the need for you to focus more and encourage more cash sales in your business. You can consider discounting price in order to encourage customers to buy on cash basis rather than credit basis. A cash sale allows you to receive your money from sales at the point which sales has been made, thereby improving your cash flow.
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Cash Flow Statement is beneficial as it helps in keeping record of various cash investments right from the beginning till the end. It is an important financial tool that helps in making various financial forecasts.