Though cash or capital is considered the lifeblood of any business and the fuel which keeps the engine running, majority of businesses cannot really function efficiently without managing their cash flow. Cash flow pertains to the total amount of cash as well as cash equivalents moving in and out of business. Positive cash flow shows that the liquid assets of a company are increasing and allowing it to settle debts, reinvest on its business, return the money to shareholders, pay for the expenses and finally, provide shield against financial challenges in the future.
The net cash flow is usually distinguished from total or net income that includes accounts receivables well as other items wherein payments have not actually been obtained or received. The cash flow is being used to assess the quality of the company’s income and that’s how liquid it is can indicate whether the company is actually positioned to remain stable.
Trying hard to run a business without really managing the cash flow is like struggling to paddle a boat with no oar. Cash flow is vital to businesses and probably more critical for those who are just starting with their venture. If you can’t manage cash flow within first year, you’ll probably not survive the second year.
The three essential elements of cash flow analysis are:
- Account receivables-what clients owe you.
- Shortfalls-business individuals hope not to have shortfalls but these happen
- Accounts payable-what you owe to your suppliers
It is highly imperative to manage these three imperative elements if you really have the desire to navigate business to ultimate success.
The 3 Helpful Tips to Manage Cash Flow When Business is Doing Well
When business is booming or doing well, it is easy to lose track and sight of what bottom line is really all about. The following helpful tips will allow you to maintain a cool head, prevent overspending and manage cash flow effectively to ensure that business will run smoothly:
- Stick to Original Budget
When business instantly receives influx revenue, it really can be tempting to invest on costly equipment and spend for fast-track plans for expansion that are either part of original budget or out further on the roadmap. It’s actually much smarter to stick into the original budget parameters and then save money. It is also a much better option to work on building about 2 to 3 months of business funds which can be put towards expenses and bills in order to keep the business afloat in downturns. Avoid spending money only because you have it.
- Hire Freelancers
When business is booming, it can sometimes be difficult to predict how long the boom can actually last and whether hiring some more full-time employees is appropriate or suitable in the long run. You can consider hiring freelancers to take responsibility on additional works.
- Track Expenses
If spike in clients is there, it can be a real challenge to keep track of the entire invoices accurately and make sure that this task is being fulfilled. Therefore, leveraging mobile invoicing application and being hand on when it comes to sending and creating invoices in real time eliminates possibility of forgetting to bill clients and missing their payments.
Even if business is doing well, follow these tips to manage cash flow and ensure business’s success.