3 Things You Need To Know About Cashflow – and Why It Matters
Posted on February 24, 2016
Cashflow is often overlooked when starting a new business as the owner looks primarily at revenue and misses the vital importance of cash in the company. Business cashflow is the money that comes into the business compared to the money that is going out of the business. What does this mean for your company? How can you manage cashflow so that you are more profitable and successful in your enterprise? Pay attention to these quick pointers:
- All about Cash Inflow and Outflow
Your cash inflow is the money coming into the business from customers and clients for services and products, money from investors, interest, and money from loans. The cash outflow is money going out of your business in the form of wages, debt repayments, expenses, purchases, raw materials and more. It stands to reason that the higher your positive cash inflow – you have more money coming in than going out – the more successful you can be with your business. You can keep on top of your outgoings and invest money left over in expanding your business.
- Planning for Positive Cashflow
Usually, positive cashflow does not happen by chance. You need to plan and organise your business so that you develop this positive state. You need to make a note of the cash that you have to start your business, whether this is in the form of a loan, savings, money from the sale of products, or other investments. Then you need to look at where money needs to go – rent, marketing materials, legal fees, purchase of equipment, etc. You also need to plan for the amount of cash you can expect to come into the business each month. And the amount of money that goes out. It is important to be realistic when you are planning these figures. It is not good enough to simply add on more money from sales if your cash outflow is larger than the inflow, when you don’t know where you will get these sales from. It is more effective to make cuts to your outgoings in order to make the accounts balance.
- How to Improve Cashflow
If you need to invoice clients and customers you can do several things to improve the speed at which you get paid – this helps cashflow because your money is not tied up in invoices and can be used more efficiently to pay bills and make investments. You can make sure you follow up on unpaid invoices quickly, and assertively. You can make use of an invoice financing agreement from ultimatefinance.co.uk, and you can arrange a deposit system so that you get some of the money upfront. It is also a good idea to negotiate better terms with suppliers and use payment terms effectively to control outgoings.