Making a profit is essential for running any successful company. But even companies that make a profit can fall short because profits cannot be the only financial focus if you’re looking to create a stable, long-term business.
If profits are the life blood of your business, then cashflow is the beating heart of your business.
Without a constant and predictable flow of cash into the company, you can’t cover your overheads, you can’t pay your employees and you can’t run your day-to-day operations let alone think about expanding and growing the business. Cash really is King!
So, we need both a healthy cash position AND a good focus on driving profits.
Keeping on top of your cashflow management is a vital part of the financial management of your business. This is especially true in the current business climate where sales revenue may be less buoyant, cash can be tight, and the market is going through a challenging time.
Let’s look at some of the key things to understand about cashflow management:
• Drive more revenue, through increased sales and marketing activity – if you can increase your revenues, you also boost your cashflow. Once you pass the break-even point in the business, any additional revenue will go straight to the bottom line
• Know your cost base and overheads – In an ideal world, you want more cash inflows than cash outflows, so it’s important to know your expenses and costs and to manage them carefully. This is where forecasting is key
• Be proactive about spend management and easing expenditure – continue to take action that reduces your spending as this will be hugely positive for your cashflow position. Choose cheaper suppliers, negotiate better deals and bring that cost base down.
• Keep on top of accounts receivable – if your customers take too long to pay you this can have a significant impact on your cashflow.
• Utilize ‘free” credit offered by your suppliers – if your suppliers offer you 30-day terms to pay their invoices, that’s 30 days of free money. Use it.
Keep the cash flowing and the profits take care of themselves – if you achieve the ideal cashflow position, the company sits on solid financial foundations, the cash is there for investment and the business can grow. It’s that simple!
