At the helm of your business, there is no job that’s not your job. While your employed peers might enjoy more specialised roles, as the boss of your own business, you need to have an understanding of the basics that drive your business. You might have your own numbers guy or gal but to make money, you need to understand your finances and cash flows. “Why?” you ask, secretly hoping that you left the world of mind-boggling mathematics after your 10th grade Maths paper. Fear not! We’re here to tell you exactly that:
1. It’s a good weather forecast: Your smartphone gives you all the information you need for the present and the future. From the weather to the traffic forecast, it gets you ready to face anything and also tide over any storm. Cash flow collects information from your sales people, credit workers, collections, service representatives and your finance department. By collecting this information you will know how much cash you can accumulate from payments, interest earnings, service fees and collection from bad debts and therefore know if tomorrow is going to be sunny or if you need to plan for a rainy day.
2. Know Thy Expenses: More than knowing how much is in the bank, you as a business owner need to have a fairly accurate idea of how your business runs on a day to day basis. Your business should know what you spent on instead of only how much you spent. This can be done by simply creating a line projection of outlays. Here’s an example: Let’s say you collate all of the rent, inventory and office expenses in your cash flow tool or a spreadsheet and by doing so you can pinpoint what your projection of outlays would be for the following months.
3. What’s a Receivable?: There’s a lot of jargon when dealing with finances and receivables is a fairly simple one to decode. It’s the amount that your business will receive a.k.a what it is owed – remember all the invoicing you did? Better receivables translate into better cash flows. Your business can do better if you improve the speed at which you turn your services and/or products into receivables. This way you can develop a good yield of cash for the company.
How can you do this?
- Offer discounts
- Request customer deposits at the time of delivery
- Provide ways in which quick payments can be made by the client – payment gateways
- Insist on credit checks
- Make credit available to the clients – if possible.
- Sell old inventory and issue invoice promptly
4. Play Those Payables: As your business grows, so too must your sales. How do you do it? You must check daily expenses and the extent of how you can expand sales. Always inspect and examine ways in which you could be spending on the sales that you make and control them. In this case, your suppliers are your friends. So you should let them know your financial status and develop a trust and understanding with them. Analyse vendor costs for early payments based on change in the overall costs. Look for more flexible modes of payment to improve your cash flow.
5. Happy Investors Love Good Cash Flow: As a startup, keeping your investors happy is simple – have great financial prospects. If you have a favourable cash flow ratio then half your job is done. The better your cash flow, the happier the investor and the better your relationship. A good cash flow tells your investor that your business and his money is set to grow.
The best way to understand your cash flow is by ensuring that your costs don’t keep creeping up over your cash in hand. Your operating costs is the amount you are willing to spend on your business on a daily basis. Don’t worry about having enough cash – a good cash flow ratio allows you to have the necessary funds to keep your investors happy and wanting for more!
What’s critical is to have the pulse of your business cash flows. Yes the balance sheets are important and critical. But cash flows are the daily lifeblood – that will ensure healthy business, happy employees and a happier you!