When you think of the phrase cash flow, you may have a vision of money flowing into and out of your business. In this vision, your clients are seamlessly paying their debts to you and you're paying all of your bills and expenses. Cash flow management is the process of maintaining that flow of money, hopefully increasing positive cash flow, where more money comes in than goes out.
Let's look at cash flow management strategies to help your business.
Why is Cash Flow Management Important?
When you have an understanding of what, when, why, and how your financials are moving, you then have better control over where that money is going. Managing your cash flow to increase your income will keep your business afloat and more.
How is Cash Flow Measured?
Cash flow inflows include several assets such as accounts receivable (what your customers owe you), investments, financing, and inventory. Cash flow outflows include accounts payable (what you owe), expenses, payroll, taxes, and debts.
A positive cash flow means that the amount of money your business is making through sales and accounts receivable is more than your expenses and accounts payable.
A negative cash flow is when your expenses or accounts payable are more than your income. When more money is flowing out than coming in, your business could be in trouble.
How to Improve Cash Flow
A safe bet to start is to run a cash flow statement from your current accounting software. Once you've looked at your cash flow statement, you'll notice where you're spending money and where you could improve. Some of these improvements may include:
- Collecting on accounts receivable or debts that remain unpaid
- Setting stronger payment terms or credit requirements
- Cutting back on unnecessary expenses
- Securing loans to grow your business
Managing your cash flow is simply analyzing what you're earning versus what you're spending. This strategy will improve your ability to drive more sales and grow your business.
