Cash flow is the amount of money entering and leaving your business over a given timeframe. It enables you to meet existing financial obligations and plan for the future, and it is an essential aspect of every business.
Cash Flow Is King:
Cash flow is a significant factor in the success of any business. It drives everyday operations, expansion and purchasing power. You have positive cash flow when you have more money to pay bills. Conversely, cash flow issues occur when money flowing out exceeds money coming in.
Cash flow is necessary for daily business operations including:
- paying taxes
- paying employees
- purchasing inventory
- forecasting for expenses
- preparing for dryer months
- charging clients
However, cash flow is also the number one reason SMEs fail, with 82% of SMEs failing due to poor cash flow.
A business’s success depends on generating profits while operating with a positive cash flow, highlighting the importance of cash flow and profit are crucial aspects of running a business.
Business turnover can be misleading! A healthy business turnover does not necessarily mean your business is in fine shape financially.
Cash flow is more critical than turnover, as most SMEs are fully aware, which is why cash flow management should be at the forefront of your mind.
Why is cash flow management so important?
A consistent, positive cash flow enables your business to grow and invest in new opportunities. Putting these eight cash flow management strategies in place today will invest in the financial health of your business.
- Pay bills strategically
- Choose a suitable payroll cycle
- Negotiate your payment with suppliers
- Collect receivables quickly
- Manage your credit policies carefully
- Use a business credit card
- Consider a line of credit
- Use technology to make and accept payments
Positive Cash flow management requires the following:
- constant diligence
- regular reporting
- a firm hand on the purse strings
Without positive cash flow management your business could be heading down the slippery slope of:
- diminished profit margins
Drumm Nevatt & Associates are a collective team of qualified Chartered Accountants in East Auckland and Tauranga.
Drumm Nevatt & Associates are highly skilled and trained in all aspects of business accounting and taxation. They can provide specialist financial advice tailored to your business.
Phone: 64 9 534 4382
Ridge House, 69 Ridge Road Howick, Auckland 2014
PO Box 54 060, The Marina, Auckland 2144
Phone: 64 7 576 2194
23 Myres Street, Otumoetai, Tauranga 3110