Although, no one is aware of the origins of this statement,, it is accepted universally without a doubt. Cash is “The King.” Ask any financial advisor, and they will agree with the same. Cash is the standard for evaluating the success of any business, be it big or small. Whether you have a small business or an already established one, cash flow analysis for a given period can help you determine how much cash you have in stock, how much you can generate within that period and how much people are going to value your business. All these factors will decide how successful your business is, more info here.
Why is cash flow analysis so important?
In the layman’s terms, cash flow analysis is the calculation of the cash generated and spent by a business within a specific time span. It is crucial to any business because:
– It helps the business owner evaluate the overall performance of his/her business
– It provides opportunities to improve while there is still time
– When planning for a loan, the cash flow statement can help decide on an apt time
– It also helps the business owner manage his/her credits effectively
– It aids the business owner to get a concrete idea regarding the how and when of payments and bills
Now, let us turn to the ways by which you can enhance the net cash flow of your business:
Find out all about the cash inflows and outflows
First of all, you need to check where the money is coming from and where it is going. If you think you cannot calculate your cash inflows and outflows as a united whole, divide it into categories like customers, suppliers, and inventory. See whether you get your payments in advance to be able to pay your bills on time. Talk to your suppliers and see if you can convince them to delay your payments.
Increase the length of your payable period
Talk to your regular as well as occasional suppliers to strike the best deal with them. See, if you can increase the length of your payable period, so it surpasses that of your receivable days. The more you can negotiate with your suppliers, the better. Avoid conflicts and enhance your cash collection measures to keep your cash flow positive.
Create awareness and make it a priority
You should let everyone know about the importance of cash flow. This will help them identify themselves with a common goal and give their best to attain it. Make them aware of your objectives and let them contribute towards achieving those. After all, a unified approach will reap more benefits.
Often, the owners and managing directors of small businesses tend to stay away from any calculating or accounting work. They do not realize the harm they are doing to their businesses by shying away from the “numbers.” A little bit of financial knowledge and practice can help them steer clear of financial crunches and other adverse situations. Boring Business, based in the UK, aims to help startup owners get more acquainted with their “numbers” (accounts, finances, cash flow, etc.) using informative documents and video tutorials.