GOOD METHODS FOR ANALYZING AND OPTIMIZING YOUR CASH FLOW

Many business owners have poor or no understanding of cash flow management as a principal element that keeps them in business. It is sad to hear that many of such business folds up just when they have begun thriving.

As a business owner, you need to understand the difference between your profit and cash flow. It is possible for a profitable venture to shut down because of unmanaged cash flow. The fact that your business makes a lot of profit at the end of your business year doesn’t necessarily mean you have enough money to sustain the business. Money comes in and goes out. You get your invoices paid, but you also have to pay rent, utilities, salaries, etc.

For a business to keep running, it is important for the business owner or manager to know how to analyze present cash flow of the business and take necessary measures to optimize it. If you want to improve your cash flow, consider implementing some of the following method:

Use financial planning and analysis tools to trach cash monthly: in order to know how well your business is doing, you need to analyze finance based on the industry sector and the stage of the company. Whichever level your business is, there exists FPA tools that fits your pocket. Employ experts that can use these tools well or train a couple of your staffs on how to leverage any FPA tool of your choosing, to monitor business transactions.

Make projections for your business and compare with actual result: No business intending success should start a business year without making projections based on the market and company’s ability. Work towards meeting your yearly, or even quarterly goal. Evaluate the position of your business after certain period and check if the actual numbers commensurate with your projections. This makes adjustments easy to make where necessary.

Send out invoices ASAP and track them. When you make sales, send out invoice immediately. After sending out invoices, track them using accounting software, to know which customer owes you and for how long. Ensuring that your customers pay when due as this will keep you cash inflow up and keep your ready for any upcoming cash outflow.

Use easy payment methods: Leveraging online payment services will make payment for goods and services easy for your customers. Flexible, yet secured payment options encourage quick and easy inflow of cash.

Conduct regular inventory management: Clean up your inventory regularly. Those products that doesn’t sell at the same pace as others tie down your money. Sell off such products, even if it means selling at discount price.

Offer discounts: Discount is a powerful word in the ears of anyone purchasing a product or service. Cultivate the habit of offering your customer a certain percentage as discount when they pay their bills ahead of time. This way, you have enough cash to help with future cash flow.

Get loans for new investments: If you’re planning to increase your investments with the cash from your business, consider getting a low-interest loan instead. Using the cash from your business for other long-term investment will certainly tie down your money for a long period of time which might in turn, affect the flow of cash in your current business.