By: Mevish Jaffer
If you’re a business owner, then you know how important it is to be able to manage your company’s cash flow in a productive and efficient manner. However, with everything involved in operating a business, it’s not always easy to do so. A highly effective way to achieve successful cash flow management is through cash flow analysis.
How Does Cash Flow Analysis Work?
Cash flow analysis involves thoroughly examining your business’s cash inflow and outflow cycles. The reasoning behind conducting cash flow analysis is to ensure the maintenance of a sufficient cash flow for your business. Some of the business components affecting cash flow that this type of analysis looks at include:
- Accounts receivable
- Accounts payable
- Inventory
- Credit terms
By separating each business component and examining them individually, you will be able to spot your problem areas far more easily and have a chance to improve them accordingly.
Effective Cash Flow Management
Let’s say you’ve completed your business’s cash flow analysis and have identified several cash flow problems you need to improve, if not all together immediately fix. What are some ways to achieve successful cash flow for your business and prevent future cash flow problems from arising? The following are some helpful tips and advice that may be of use, should your business run into any cash flow problems.
Payday Loans: Also known as a cash advance, payday loans may be your immediate solution for temporary business cash flow emergencies. A payday loan is essentially a short-term loan that provides you access to cash right when you need it. These types of loans are generally between $100 and $1500 and are typically on a 2 week term. One factor to take into consideration with payday loans involves higher interest rates. However, if your business runs into an unforeseen cash flow emergency, a payday loan may be your best instant solution.
Budgeting: The process of creating a budget for your business is extremely essential. A budget enables you to plan your company’s finances ahead of time and avoid potential pitfalls concerning cash flow. By setting a budget, you also have the advantage of always staying on top of your business’s financial status, as you can check its performance against budgeted figures.
Expenses: A typical reason as to why most businesses experience cash flow problems involves slow paying customers. The simple fact is that you have to stay on top of your customers in regards to payment; it’s your expenses that are on the line after all. If your customers don’t pay you, your business can’t cover its expenses; a task which is mandatory for survival. Below are some things you can do to ensure your customers pay you in a timely manner so you can manage your business’s cash flow productively.
- Check the financial status of a new customer before offering them a line of credit
- Make sure to ask a new customer for businesses references you can refer to
- Impose a late fee for habitual late paying offenders
- Follow up through phone calls or letters and if absolutely necessary, turn the account over to a collection agency
Cash Flow Analysis not only helps you identify immediate cash flow problems, it also aids in preventing future ones from coming up and enables you to manage your business’s cash flow successfully.
