Back to Basics with Cash Flow

Posted 30 September by Shea St. Laurent in Cash Flow, Small Business

All small business owners understand cash-flow. Or do they? According to Bloomberg, 8 out of 10 new businesses fail within before they even hit the two year mark.

What is cash flow?

Of course, there’s your receivables such as revenue from products or services, or loans and investments. And your payables such as rent, utilities, salaries, suppliers and loan repayments. Easy to track, right? Let’s take a look at some of the things affecting cash flow.

Unexpected delays in a client payment

Delays can often happen, and are usually out of anyone’s control. Do you have enough cash in reserve for such an issue? If you’re on top of your cash flow regularly and can identify these types of issues, you can potentially arrange short-term financing or other solutions to get you through the shortfall. Think of it as an “early warning system” for your business.

Employees and vendors

On the other hand, your employees and suppliers deserve payment on time as well. If you don’t keep them happy, you won’t have a business! That said, early payments to vendors can put you in a cash flow crunch. Pay close attention to terms and make sure you maintain good credit.

Anticipate the future

We can’t predict what will happen tomorrow, next month or next year, but having a working model of your inflows and outflows will allow you to be prepared for hiccups that may happen. Also bear in mind, banks and investors sometimes require cash flow forecasts at regular intervals to ensure you are in control of their investment.

Understanding cash-flow

Understanding cash flow is the single most important aspect of starting a business, and continuing to maintain it well into a successful future. These numbers will always be evolving with your business so it’s critical that you are overseeing them regularly. I’m not talking once-in-awhile, or even annually. Most successful companies track their receivables and payables weekly. That’s right, weekly. This way, you can identify issues before they become real problems.


Dryrun is a simple way to forecast your cash flow, build budgets and track sales projections.

Learn More



Photo Credit: Hugo Chisholm on Flickr and reproduced under Creative Commons 2.0

 

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