According to Forbes.com, cash flow is the measure of the money generated minus the money spent in a business and a cash flow statement reports the change (increase or decrease) in your cash on hand over a period of time (Source). In the Caribbean, you must present a cash flow statement to the bank in order to obtain a business bank account. This task proves very difficult for some entrepreneurs, far less for the management of the business’ cash flow over time.
We’ll explore 5 tips you can apply to your business to ensure you can better manage your cash flow, but let’s take a look at why it’s useful for your business.
Why Do You Need A Cash Flow Statement in Your Business?
A Cash Flow Statement has several benefits to your business such as (but are not limited to):
When a business does not have enough cash to cover its liabilities or expenses, then they may run into problems. These problems can have a domino effect on the business and may present themselves in the form of:
To avoid these issues, here are 5 tips you can apply to manage the flow of cash in your business:
1. Increase the speed at which you receive payments from your clients:Sending your invoices on time is a simple tip for you to be paid on time. However, you can also ask for a partial payment upfront and/or reduce your payment terms from 30 days to 15 days or lower.
2. Reduce your expenses:
An easy way to save cash in your business is to decrease your expenses. Therefore, you should look at all of the expenses within your business and categorise them as ‘necessary-for-my-business-to-run-daily’ and ‘nice-to-have’. Needless to say, unnecessary subscriptions should definitely get the axe!
3. Create a survival plan for your business:
You should have a plan in place, just in case your business runs into any cash flow problems. The plan should clearly state what you should do in the event that cash flow problems are encountered by your business. For example, should you apply for financing to keep the business afloat?
4. Consider External Financing:
An injection of cash into your business may not solve the issues, however, it may buy you some time to analyse your internal operations and identify the root cause of your cash flow issues. It is wise to keep a line of open communication with your banker and preferred financial institution, especially for circumstances like these.
5. Take Advantage of Technology & Outsourcing:
Many accounting solutions possess the intelligence to alert you if, or when there are imminent cash flow issues in your business. Additionally, it is wise to accept the advice of an accounting professional to monitor the management of cash in your business.
Although many entrepreneurs run into issues while managing their cash flow, a number of new entrepreneurs do not know where to start when it comes to generating a cash flow statement for their business.
At ATR Business Solutions, we have created a Cash Flow Wizard that takes the hassle out of cash flows for you. Purchase a copy here.
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References:
Chandi, N. (2020, January 28). Council post: Know the difference between cash flow and profit. Forbes. Retrieved March 21, 2022, from https://www.forbes.com/sites/forbestechcouncil/2020/01/28/know-the-difference-between-cash-flow-and-profit/?sh=27291b345381