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How to improve your cash flow management

How to improve your cash flow management

Businesses cannot be without money. Finance IT Forward knows how to manage small business cash flow.

Cash is the king of the financial management of any business. Above all, cash flow is a big priority for any small business. However, no matter if your business is medium or small, growing, stable or struggling, managing your cash flow effectively is essential for any type of business. Depending on it, your business will grow or break.

However, don’t worry! The right strategy and the right knowledge will help you. First, there are many types of strategies. With the help of them, you can use it to ensure you always have funds in your account to pay expenses and keep your business afloat. As a result, your expenses decrease or your revenues increase. 

Secondly, make sure you understand the topic well. There are some important things you need to know about cash flow. This knowledge will help you succeed.

  • The amount of money that a business has, whether that money is being transferred in or out of the business is cash flow. 
  • Positive cash flow is when you have more cash coming in than leaving your business.
  • What is the difference between cash flow and profit? Profit is money left over after taxes have been paid, paid to vendors, purchased inventory and any other bills have been paid that business accumulates. But imagine the situation: what happens when those bills come due again and your clients have not paid you? But what if you have an unforeseen expense? So, cash flow comes to the rescue. Deferral of spending cash as long as possible is cash flow management. Meanwhile, by encouraging everyone who owes you money to pay it as rapidly as possible.
  • There are three types of cash flow: operating, investing, and financing. 
  1. Investing cash flow is investments in other business ventures and purchases of capital assets. 
  2. Financing cash flow is the net amount of funding a company generates in a given time period used to finance its business. That is to say, includes all proceeds gained from issuing debt and equity as well as payments made by the company.
  3. To understand the true profitability of the business, analysts look at free cash flow.  To clarify, free cash flow is the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Important to remember

Your cash flow cycle affects your ability to pay bills

Every business has cash flow problems. It depends on how the cash flows in and out of your business and how long it takes to do so. An indicator such as long your cash flow cycle has a significant impact on your cash flow. Money that is tied up in inventory, cannot be used to pay vendors.

There are several ways to improve your cash flow cycle:

  • Buying less inventory. For example, you may pay more per item, but you’ll tie up less cash.
  • Hire staff. Staff to help you during the busy times of the year.
  • Demanding full or partial payment for an order upfront. As a result of using these tactics, you will get paid faster.

To sum up: the higher your profit, the better your cash flow cycle.

Your cash flow condition depends on your profit

Do not forget to look at your pricing.  If you’re charging too little, it means you’re having to work extra hard to keep cash flowing. However, if your profit margins are higher, you’ve got more cash to work with. As a result, that makes that cash flow cycle easier to deal with since you should have money in the coffers.

  • Target your competitors. Check how much your competitors are charging. Draw conclusions and set the right price.
  • Justify a higher price by offering extra value.
  • Keep old, time-tested connections. Increase pricing just for new customers. End unprofitable relationships. Break a relationship with someone who never pays.

How to fix cash flow problems in your business?

No spending rule is perfect. Meanwhile, the leading positions are occupied by businesses that focus on asset cash flows. 

When you start a business you have a lot of expenses, money is going out fast. Or maybe you don’t have customers and sales yet. The problems faced by a startup business are different …

In such cases, you will need some other temporary sources of cash. For example, a temporary line of credit, to get you going and on to a positive cash flow situation.

We can help! Finance IT Forward is a significant tool in the pursuit of effective cash flow management. On our platform, you can find the right financing for your cash flow. Finance IT Forward helps you automate payment collection. As a result, by allowing customers to pay automatically, your company can dramatically reduce the time it takes to receive payments from customers.

Managing cash flow at Finance IT Forward

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