Cash flow management is the process of planning, monitoring, analysing and adjusting your business effectively. Proper management of this process can mean the difference between keeping your door open or displaying a for sale sign!
Every business needs to regularly perform a cash flow analysis and use cash flow forecasting to take preventative measures well ahead of any potential threats. Our Cash Flow category in the Accounting and Finance section will give you some advice on how to do this.
The following are examples of situations that may lead to cash flow problems and precautionary measures that can be implemented:
- Poor credit control: if you don’t get paid on time, you will default on your obligations. Counter this problem by having strict credit policies in place
- Order fulfilment: if you don’t deliver on time you won’t get paid. Plan your workload properly and accept orders that you are capable of completing. Inform your customers in advance if you can’t deliver timeously
- Ineffective marketing: this may result from ineffective use of marketing tools. Create a marketing plan that can reach your customers effectively. Ensure your message is correct so as to not attract the wrong kind of enquiries
- Poor cash controls: having poor cash controls can be very detrimental to your business even if you think you have enough cash. Impose stringent controls on cash as it’s an important survival tool
- Inefficient ordering systems: systems should be user friendly and customers should be able to deal with you efficiently by not being subjected to complicated red tape
- Poor management accounting: every business should be able to account for its activities. Proper record keeping would lead to accurate accounting
- Inadequate supplier management: the common practice with suppliers is that they overcharge or take lengthy periods to deliver stock. You need to create a system that will help you manage your suppliers
- Poor controls of gross profits and or overheads: every business should develop its own pricing model and prepare budgets to ensure that overheads are kept within targets
There are many different situations that can cause cash flow problems, but these are the most common among entrepreneurs. One should always remember that by building up a positive bank balance, you can trade effectively and grow your business. Manage this money to earn you good returns.
All entrepreneurs are in business to make money. Effective controls over cash flow can help to generate substantial wealth instead of spending it month after month.