Cash flow is an important part of your business that you probably don’t think about directly. If you don’t know what it is, don’t worry, everything will be explained in this post. I’ll tell you what you need to know about your business cash flow, including how you go about making it positive. To find out all the information you need to improve your business, keep reading.
Cash Flow Explained
What is cash flow? The easiest description is that it’s all the money that moves through your business on a monthly basis. It’s the money you’re generating through sales, etc. and the money you’re spending on overhead costs.
The aim is to have a positive cash flow where you’re making more than enough money to handle what’s leaving your business. In essence, you’re generating lots of revenue so you can pay all your expenses and have some money left over.
The Importance Of A Positive Cash Flow
Okay, we know what cash flow is, but why is it important? It’s simple. If you don’t have a positive cash flow, your business will struggle. You need to have enough money to cover all your monthly expenses. If you don’t, you’ll basically lose money every month or keep breaking even. In turn, your company won’t make any money. Every month you’ll bring in money through sales, then all of it flows right out to pay for your expenses.
It makes all your effort pointless when you think about it. You and your team work hard to make sales and you see nothing in return. This is why you need a positive cash flow -to keep your team motivated and your business alive and profitable.
How To Keep Your Cash Flow Positive
There are plenty of tactics you can use to keep your cash flow positive every month. The most effective of which is cash flow forecasting. A cash flow forecast is basically where you run the numbers and predict what your flow will look like at the end of the month. Any local bookkeeper can help you with this as it’s fairly easy to do. By predicting the future, you can stay on top of potential cash problems before they happen. Similarly, you can rectify issues and ensure your cash flow doesn’t end up as bad as it might be predicted.
The other main tip I have is to keep your business ticking over. By this I mean to ensure there’s a regular flow of money entering your company. This requires you to have a nice loyal customer base and to keep bringing in new customers every month. Consequently, you’ll keep generating income, which ensures you can cover your expenses.
Too many small businesses don’t think about managing their cash flow. In reality, it’s one of the best ways to measure your success. By checking your monthly cash flow, you see how your business is doing and where you can improve. It also enables you to compare things from month to month. Aim to continually stay positive and grow a little bit every month to create an upward trajectory to success.