Why Knowing Your Cash Flow Will be The Thing to Save Your Business

Dealing with cash flow issues is most difficult when you are starting a business. You have many expenses and money is going out fast. Think of 'cash flow' as a picture of your business. If more money is coming in than is going out, you are in a "positive cash flow" situation and you have enough to pay your bills. If more cash is going out than coming in, you are in danger of being overdrawn, that's why you need to know where your cash flow is, to save your business. When your business grows, it’s essential you fully understand the movements and volume of your cash flow on a micro level of month to month.

The larger the business, the more complex the cash flow is, so you need to examine everything thoroughly. Some factors to consider when reviewing your cash flow include target pricing, and understanding the true costs of each sale which helps know when to hire a salesperson and the KPI's they will need to work towards. You might notice some services are costing you more money than you thought, or choose to focus your efforts on the most profitable products your business offers though you sometimes don't where that is within the business unless the numbers are maxed out to track it adequately. It’s always worth keeping an inventory of your strongest performing products and generally set up a culture of observing your key performance indicators around these to see their consistency. Then keeping in mind those learning so you can replicate their success moving forward on other products or strategies for growing the business.

Monitor your business’s cash flow, look at your current financial situation, but also pay attention to patterns, such as how long certain clients take to pay their bills. If problems arise, it can be critically important for you to be able to pinpoint the causes early so that you can act on them effectively. If you do your own books you need to allocate time to follow up outstanding invoices. But over time it would be more ideal, having a contractor or in house employed book keeper that can do the numbers for you and chase funds owed. You want to be at the front of the ship leading the way and not bogged down tracking the numbers weekly, keep in mind understanding them and knowing the flow of how the businesses oxygen source moves is critical to controlling the ship sustainable.

Learning the basics to monitoring cash flow, every business owner could probably benefit from a basic accounting course when they are starting out. Learn what the most important measurements are to apply to your business financially, even if you have designated experts on staff you need to know how to manage them and know what they are doing in your business as they have one foot of the blood line of the business. Delegation is important and necessary, but the buck ultimately stops with you. Being able to understand financial concepts and the language of accounting better enables you to evaluate the financial health of your business so keep this in mind always.

At this stage, it can be enormously beneficial to partner up with a cash flow finance expert or look for quality outsource companies that offer book keeper services if money is an issue. Not only can they help a lot with complicated processes like weighing up future investments and cash flow, but they’ve seen and done it all before. So when doing your book keeping, make sure to have the structure mapped out for efficiencies earlier rather than later, should be aligned to the work flow of your business model.

So take the numbers of your business serious it is the life line of your business and this has taken out many businesses before over the history of time, from small to large operations, when you don't forecast things, knowing how the business is actually performing as in daily profitability as the causes. So go learn the basics, ensure you allocate quality time to this aspect of your business and utilise the knowledge of others to help plan the business for growth without putting your dreams at risk.

Written by:

Kane Hansen

www.truenorthbusinessconsulting.com.au