Many business owners assume that since they are selling at a higher price than they bought, they are flourishing. However, they may be unknowingly leading their establishments to oblivion. Only by looking at the bigger picture of the inflow and outflow of cash and exploiting the quick cash flow finance options available can you be sure that your business is thriving. It is important to keep in mind the fact that profit does not determine the amount of money in your hands. Many other components including accounts payable and receivable, debt service, capital expenditures and inventory are at play.
Understanding Cash Flow
Cash flow is simply the entry of money into your business as well as its exit. It is one of the most crucial components of success of any business. Without positive cash flows, your business profits are meaningless. In fact, many businesses have ended up in bankruptcy because the amount of cash flowing in doesn’t compare with the amount of cash going out.
Types of cash flows can be narrowed down into two. While positive cash flow is evidence that more cash is entering the business than leaving, negative cash flow shows that less money is flowing into the business than is flowing out. The latter is a sure sign that is something is wrong and working cash flow finance options need to be considered to save the business from collapse.
Remedies for Negative Cash Flow
One of the best options for achieving a positive cash flow is speeding up payments from your customers through such measures as centralized banking, making it cheap and easy for customers to pay and encouraging early payments by giving discounts. Another option for getting a better grip on your cash flow is coming up with stricter rules for credit. While you cannot rule out the fact that some customers will ask for credit, ensure that it is advanced to only the businesses which do not have cash-flow or other financial problems, or entities that are sure to pay on time. You can also seek to increase your sales through acquisition of new customers or encouraging current customers to buy more through various marketing means.
Turning negative cash flow around to a positive result is not easy. It requires a lot of work in analysis and management. Still, it is by all means possible and has been done many times. While such quick cash flow options as strict credit terms, insisting that your customers pay early or taking out loans are not exactly pleasant, they are necessary for continued growth and prosperity of your business.