Cash flow management: 4 Simple steps that you can take to improve your business cash flow
What does cash flow mean and how it is different from Profit and Loss?
Many business owners thinks that positive profit and loss account means positive cash flow. However, your cash flow does not depend upon your business profits only. Cash flow means funds going into and out of your business where as the profit/ loss means overall result of your business activity. The cash flow is broadly divided into two types that is Positive and Negative cash flows.
4 Fundamental Cash flow Strategies to get positive Cash flow:
1) Get on the top of your books:
You won’t be able to take informed decisions if your books are not up to date. So, first thing you have to do is to get your books current and make it error free. Take help of bookkeeping companies if you are too busy in your business.
2) Know the Reason for negative or low cash flow:
The reason could be any of the following:
i) Lower Sales
ii) Higher Expenses
iii) Accounts receivable ageing is high
iv) Accounts payable ageing is low
You can look at the industry specific reports and compare that with your financials to know the specific reason. Also, there are various tools available in the open market that can be used to analyse this.
3) Take Appropriate action based on your findings:
Once you know the reason for low cash flow you can work on the solution for example if you have a lower Sales than you have to either increase a price or increase the quantity with the same overhead cost. Sometime the solutions are not that easy to implement as that can change your market positioning so be careful while making this change.
4) Repeat the process:
You have to be consistent and keep a constant eye on the above 3 steps in order to get positive. You can keep that in your monthly task to check your books and financials monthly. Now a days there are various outsourced bookkeeping & CFO companies are available who can do that for you at very reasonable rates.