EJ Dalius the health of small businesses depends on adequate cash flow management because cash is the lifeblood for business. Whether your business is struggling or growing, maintaining steady cash flow is a must and also business. Success depends on how well you can manage cash. Even struggling companies can hope for good times. Provided they have cash reserves which, if dried up, can kill even the most profitable businesses. Says EJ Dalius, a successful marketing entrepreneur who has hands-on experience about running businesses.
The cash crunch is dangerous because as it can stifle business operations by making it difficult to pay suppliers. Pay salaries, and purchase raw materials and also other inputs. Most cash flow problems originate from the mismatch between the time of receiving your outstanding payments. Against invoices and the time for paying your bills and suppliers. To address the issue, you must learn good cash flow management. Advises Eric J Dalius, which is also the way for business survival.
Keep reading to learn how to practice good cash flow management.
Profit does not mean good cash flow
As stated earlier, profitable companies might go through severe cash flow problems and even face closure. Many people tend to confuse profitability with cash flow, which is an entirely different thing. Your profit & loss account is just one of the information sources. To determine cash flow, and also there are many other factors to consider. Focus on inventory, accounts receivable, accounts payable. Taxation and capital expenditure can give a clear picture of cash requirements and also availability. Pin-pointed monitoring of all these factors, together with P&L accounts, leads to effective cash management. It is all about what happens to your cash and not how much profit you make.
Determine the breakeven point
Eric Dalius says that knowing the time when your business is likely to start making a profit is important. Although it does not have any relation to cash flow. It becomes a target for you that helps to project future cash requirements. Channelize your efforts in generating cash reserves while attaining the breakeven point. Get going by gathering data about income and also expenses and also begin the exercise for breakeven analysis.
Fast invoicing and clear payment terms
One of the reasons for the cash crisis is a delay in realizing payments against outstanding invoices. Although debtors delay payment, delayed invoicing is a major cause of receiving payments late in most cases. Raising invoices faster can help receive payments within the agreed time, but it is essential to mention the payment terms. Consider the fact that debtors tend to delay payments by two weeks and also try to negotiate. The payment terms of 13-15 days so that finally, you get paid within. A month, which is the standard credit terms.
Monitor cash flow by using charts
The key to effective monitoring of cash flow is to keep a tab on the revenue and also expenses. Use some accounting software that helps to track the data. Closely and create charts for weekly evaluation to understand the trend. After a few weeks, you will gain some knowledge about the pattern of cash. Flow that will help to plan for better cash management.