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Thursday, October 22, 2015

Why Cash Flow Management is essential for Your Business Survival?

cash flow management

Profitability is important in the long term; but in the short term, the cash flows must be managed carefully to avoid running out of cash and potentially being forced into liquidation.

Inability to stay on top of cash flow is a common drop of enterprises which can then no longer cover their necessary expenses such as salaries, rent, or supply of raw materials.

Running out of cash is the reason why the majority of companies being forced into liquidation. Although profitability is important in the long term for a company, in the short term, the cash flow must be managed very carefully.

It is important to ensure that you have a regular payment run with processes that are set up correctly. If you do not send your bills to the right contact at the right time and Chase payment if any, you probably will not get paid on time. Remember to allow time for the payment clear in the bank as well.

One of the biggest problems for small and medium enterprises is that many large companies are increasing their standard payment terms, which are sometimes up to 90 days. Small businesses may have no choice but to wait for payment.

The best you can do is to invoice customers early, make sure your payments are in their systems and politely confirm with the accounts department that your bill will be paid on time.

Be very careful of lowering prices in order to win the job or work . By working with low margins, you have to work much harder to break even, and it is difficult to put prices up.

Try not to be too dependent on an overdraft. Do not see it as part of your financing cash flow, but as a fallback if funds are tight. If you are likely to breach your overdraft, the best bet is to inform your bank manager in advance. Tell them why it is a problem, when it will be resolved, and what other money you expect in the account.

Many banks prefer to work with a management team that has control of their finances, even if there is a temporary problem, than with people who have no control over their financial affairs.

Send your lender regularly copies of your management accounts with a summary of your performance. So if you need to extend the credit facilities, you have already demonstrated that you are in control.

Think of your cash flow, as the most important aspect of your business, perhaps as important as the sales activity.
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