Profit from cash flow management.

22 10 2009

CashFlowManagement

I admit, I’m not an accountant. But I am intrigued with the idea that the effective management of a business’ cash flow could result in higher profits. Today, everyone seems to be scraping for what little funding exists. But what about making the most with what you have?

Here’s the deal. Even if you wanted to work with more money, a bank (or other source of funding) will only lend you money if it knows that you are in control of your business – because, at the end of the day, the bank wants to be repayed. So the first step to making more with what you have is  improving the quality, accuracy and timeliness of your financial statements. There are lots of tricks to the trade, but the theory behind this is not at all brain numbing. It’s simply this, you need to be diligent and efficient in recording information on a timely basis. And managing your cash flow isn’t a task that you do once and a while. A good cash flow manager reviews his/her business’ cash flow position daily, monthly, quarterly, and yearly. It’s a mindset, not just a concept.

Let’s back up and look at the big picture. As a broad standpoint, it’s important to:

  • Accurately detail your planned monthly expenses.
  • Examine the cash flow from each line of business or client.
  • Update your monthly cash flow projections.

And yes, the above points are very broad. But the gist is that you take the steps to become financially literate. Financial literacy allows you to read the numbers, and the numbers tell you the story of the business, based on facts. For instance, if you are financially literate, you’d know the difference between profit and cash flow. (Click here for the answer.)

Cash flow projections are crucial to making prudent business decisions. Understanding the key drivers of your business helps you to successfully navigate challenges so that you can operate more efficiently. Improving your cash management process minimizes the worry associated with cash shortages.  More importantly, it allows you to focus your talents and efforts on growing your business, which is what you do best. It’s all about timing, and having cash at the right time is crucial to the success of your business.

To be successful with cash flow management, here are a few tips that will help you maximize your cash flow:

  • Establish tools to regularly monitor key areas.
  • Know your cash situation.
  • Collect receivables more quickly.
  • Slow down payments to vendors.
  • Sell your inventory more quickly.
  • Safeguard your assets.

Click on the link above about these tips to see how to facilitate each point in more detail. The end goal is that, by creating a better cash management system, you take the mystery out of being financially literate – which enables you to maximize your cash flow.

And with a better illustration of your cash flow, you’ll have a better idea of what aspect of your business you want to finance. (An answer that several business owners are unsure of.) Whether it’s knowing how much cash to ask for, knowing whether your line of credit is at the right level, or ensuring that you’ll have access to cash when you need it – all these questions can be clearly answered if you have an efficient cash flow management system in place.

So start “bootstrapping” your business. Do more with less. With careful monitoring, odds are you’ll likely be able to grow without outside stakeholders putting pressure on you, enabling you to control your destiny. Use your cash flow projections as a road map for the future direction of your business. And when you’ve maximized existing opportunities, prove why an additional in-flow of cash is necessary and at what time – you’ve built your business, funding will come.

Photo courtesy of About Learning Curve.

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2 responses

20 11 2009
Getting Paid: Ensuring Customer Payment. « The Company Line: BLOG

[…] themselves is no easy task, and it certainly takes time. But the more you know your cash-flow operations, the easier it will be to identify areas of risk and areas to improve. Speeding up your cash-flow […]

6 06 2010
Hiring and Recruiting. « The Company Line: BLOG

[…] at a cost. Thus, it’s important to hire when your cash flow is positive and when you have a cash management process that minimizes the worry associated with cash shortages. Aside from an employee’s regular […]

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