“Making more money will not solve your problems if cash flow management is your problem”--- Robert Kiyosaki
Cash flow management is the single most important thing you can do to make sure your business stays afloat and thrives. Yet this remains one of the most poorly understood concepts among entrepreneurs, and company owners which often results in huge losses as businesses that don’t monitor their cash flow well run out of money before they can get paid.
Don’t let this happen to you! Read on to learn everything you need to know about cash flow and how it works.
What Is Cash Flow?
Cash flow refers to a company’s ability to generate enough money to cover its expenses and make it through each day. Poor cash flow means an organization can run out of money—and in extreme cases, file for bankruptcy. A high degree of liquidity is critical to a business’s health. If an organization has good cash-flow management, it can use its available funds more efficiently.
Components Of Cash Flow
An important part of understanding cash flow is being able to see what's going in and out. This helps you spot any big trends or warning signs.
The components of your business’s cash flow are sales, payments, income, expenses, collections, purchase orders (invoices), payables, short-term investments (cash), and long-term investments (cash).
If there is one thing that characterizes a business' health it's being able to see how well its capital is being used—that means making sure that accounts balance without accounts.
Ways To Manage Your Cash Flow
Ordering business checks with your company’s name on them -Setting up a separate bank account for running your business -Set up direct deposit so that every single penny coming in goes directly into your checking account. -Pay yourself first by taking some amount from every payment you receive, then depositing it straight into your bank account.
Then work back from there. What are your fixed expenses? Rent, utilities, insurance, office supplies—all these things can cost more than anticipated if left unchecked. It’s best to create some sort of checklist that maps out when payments are due and how much money needs to be withdrawn for each transaction.
It’s important for businesses to have a solid grasp of their financial health. While there are hundreds of factors that can affect your business’s cash flow, they can generally be divided into two main categories: what happens in your business (customer demand, expenses) and what happens outside your business (interest rates, seasonal or unexpected changes).
Additionally, it’s important for business owners to be aware of their financial responsibilities so they don’t overlook important dates or deadlines.