The thing about cash flow problems is that they can arise even when the going has been good for some time. Cash flow is essential for any kind of business growth, as growth is usually facilitated by surplus revenue. As always, a distinction must be made between cash flow and total profits, with the former being far more important if a business is going to get anywhere.
A healthy cash flow means that financial obligations can be met when they arise, a poor cash flow means that, even if total revenue adds up to more than total expenses, you could still find yourself short on the day that certain payments need to be made.
If a business is going to see any growth at all, then a healthy cash flow needs to be maintained. Maintaining it, however, is not a forgone conclusion once it has been achieved. Downturns in sales, the effects of wider economic conditions, and sundry other problems means that cash flow can very often be disrupted.
A Word About Invoice Factoring
For many small businesses, invoice factoring serves is a vital lifeline when a healthy cash flow has not been reached. fastFACTR, an invoice factoring service out of Salt Lake City, describe factoring as a simple system where invoices serve as the security for a loan. The factoring service lends you the invoice value under the understanding that the customer then pays the invoice back to them. This is a lifeline when a company is suffering cash flow problems.
Cash Flow Strategies
However useful invoice factoring may be, there is no substitute for managing your cash flow and ensuring that you have the money to meet your financial obligations when you are required to meet them. This is particularly important. With an effective strategy, you can do something about temporary cash flow problems, and anticipate ones that may arise in the future.
To that end, here follows two of the most important cash flow strategies you can begin to implement at your small business today:
Cash Flow Forecasting
Casting your eye over your balance sheet, income statement, and budget will actually not give you a clear idea of your cash flow or, indeed, how much cash will be flowing in and out of your business even as little as a couple of weeks in the future when certain payments are due.
Cash forecasting, of course, is all about working out what your cash flow will look in the future. But how do you go about this? Well, you need to take into account things like how regularly customers typically pay, the company’s past performance (for the purposes of extrapolation), as well as a slew of other factors. There are professional services that can do that for you, but they need to have the right company data to do so effectively. Luckily, this is usually readily available; you just need to share what data the forecasting service ask for.
Managing payables is all about giving yourself as much leeway as possible and delaying payment until as late as possible while still being within the vendors terms of payment. For example, if you need to pay a supplier every 30 days, then you can set up an automatic payment for the thirtieth day. This is just one example of managing payables, and a good example of how automation can also help. It is all about having the money there when you need it.
There is always a time scale over which the economic situation will be uncertain, the trick is to predict what you can and go from there.