We often refer to commercial financial solutions that allow you to solve your cash flow business challenges, but we talk less often about cash flow management skills. So what does a business need to consider?
It really is all about adequate management of your company cash flow. Cash coming in, in the form of invoice payment, must at least equal cash going out in the form of operating costs and expenses, otherwise a business is ultimately potentially staring bankruptcy in the face. In a recent article in Inc.com, cash flow basics are examined, with some excellent advice and suggestions as to how to go about executing successful business cash flow management.
The article covers the principal cash flow management requirements, as well as a definition of positive and negative cash flow. A simple concept it may seem, but one that has many companies struggling. Positive cash flow is not a chance occurrence, it must be analyzed and managed. It is vital to produce a cash flow statement, and many sites, including the SBA can help you in this regard. Many valuable pointers are discussed in the article, including:
Understanding that profit does not equal cash flow. Your profit and loss statement is only part of the equation, with accounts receivable, inventory, accounts payable, capital expenditures, and debt service needing to be included. Revenue is generated from invoices, but cash is generated from the process of invoice collection. Profit cannot be generated without positive cash flow. Cash is needed to cover all your company expenses, with enough to generate new business, or produce more goods or services so that your company can grow and increase profits.
So what are the key pointers for better cash flow management?
- Efficient accounts receivable collection
- Tightening of credit requirements
- Increasing sales
- Offering pricing discounts
- Securing some form of financing either from a bank or alternative lending source
- Keeping up with outgoing expenses including prompt bill payment
Cash flow tracking and projection are also important elements when it comes to cash flow management. It is so much simpler to make better business decisions when you are aware of all the components of cash flow management.
Your accounts receivable may be high, but your cash flow may be weak. This is where alternative financing in the form of invoice factoring could be a valuable tool for your business. To find out more, contact Bay View Funding today.