Cash Flow Management for Small Businesses
Does your business make positive cash flow a priority? Whether it’s an existing goal that’s difficult to sustain or something you’ve never really considered, we’re here to provide fully tailored cash flow management support.
What is positive cash flow?
Positive cash flow means that a business or individual has more cash coming in than going out during a specific period. Cash inflows refer to the money that is coming in, such as sales revenue or loans, whereas cash outflows refer to the money that is going out, such as expenses, debts and staff wages.
Long-term positive cash flow can be achieved in multiple ways, such as increased sales revenue, reduced expenses, better management of accounts receivable and accounts payable, or more efficient use of working capital. It’s an indication that a business or individual is generating enough cash to cover all expenses and debts, invest in growth opportunities, and build up savings.
Another important factor is that positive cash flow is a key indicator of financial health and is often used to assess a business or individual's ability to meet financial obligations, pay debts, and pursue new opportunities.
The benefits of positive cash flow
The term itself makes it clear that it’s a good thing, but here are some specific benefits that come with maintaining positive cash flow:
Financial stability: Positive cash flow means that a business has more cash coming in than going out, which provides financial stability and reduces the risk of financial distress.
Freedom to invest: Positive cash flow provides a business with the ability to invest in growth opportunities, such as expanding operations or investing in new technology or equipment.
Ability to pay debts: Positive cash flow allows a business to meet its financial obligations, including paying suppliers, employees and lenders.
Money to pay dividends: Positive cash flow allows a business to pay dividends to shareholders, which can help to attract and retain investors.
Flexibility: Positive cash flow provides a business with the flexibility to respond to unexpected events, such as economic downturns or industry disruptions.
How can I make positive cash flow sustainable?
Your business can ensure positive cash flow on a long-term basis by implementing various strategies to manage its cash inflows and outflows. Here are some suggestions from our team of accountants, tax consultants and business advisors:
Invoice promptly and follow up on payments: Send invoices promptly, set clear payment terms, and follow up with customers who have not paid their bills by the deadline.
Negotiate favourable payment terms with suppliers: You may be able to delay your cash outflows by negotiating longer payment terms with suppliers and taking advantage of early payment discounts.
Manage inventory: Managing inventory/stock levels efficiently (if applicable), reducing waste, optimising production processes and forecasting demand accurately will all benefit your cash flow.
Control expenses: By analysing what your business uses on a monthly basis, you may be able to reduce or even remove certain costs.
Seek alternative funding sources: In some cases, applying for loans, grants or investment may be a suitable way to improve your cash flow.
Monitor your finances: By preparing cash flow statements and identifying opportunities for improvement, your business will become more financially sustainable.
Ask us about cash flow management
We’re ready to help you manage your finances more effectively through our clear and affordable cash flow management service. To find out more, call our Northern office on 01482 235575, our London office on 0207 885 0605, or fill in the contact form below.
Tagged as: Small Business Help
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