Let’s Talk About Cashflow
Cashflow is extremely important for businesses of all sizes. It is basically the net change in your company’s cash position from one time period to the next. If your incoming cash is more than your out going, this is seen as positive cashflow. While if your incoming cash is less than your outgoing, it is seen as negative cashflow. The success of a business is often measured using cashflow, as it is a key indicator of financial health and of a business is viable and successful.
Why cashflow is so important:
The phrase ‘cash is king’ doesn’t exist for no reason. Having positive and strong cash flow is so important within businesses to ensure success. No only because it means a business is more positive, but cashflow puts you in a more stable position to move forward with your business. You are more likely to get the loans you wants, while also protecting you from issues like loan defaults and foreclosures. In general, having cash on hand is great but cashflow is better as it demonstrates that you business is doing well and constantly has money coming in.
Don’t forget about debt
When you need to borrow money to buy things to help your business grow and get better, you are essentially using your future cashflow to make this happen. Therefore, to make this possible, you need to ensure your business has positive cashflow to ensure that you will not only be eligible for the loan in the fist place, but also so that you know that you will be able to continuously pay off your debt commitments. Between long term and short term loans that generally require monthly payments, the obligation to continuously make these payments restricts your cashflow. So it it always extremely important to keep these in and before you continue to invest in your business and pump out more cash.
Debt management isn’t the only reason to aim for a positive cashflow position within your business. Having positive cashflow also means you can feel confident and comfortable spending on things that will help your business grow. Upgrading technologies, building better work spaces, getting better equipment are all examples of things that will be beneficial to your business but require often are sums of money to make happen. In the long run, these upgrade may also work in your favour to help generate more positive cashflow. However, to get there, having an excess of cashflow is the goal so that not only can you comfortably afford to make these business changes, but also puts you in a position where you can operate strategically and proactively, rather than in reactive and defensive when things don’t go exactly as planned.
Having positive cashflow is the main aim within businesses for so many reasons, and yet another reason if because of flexibility. Any emerging dilemmas, or any critical decisions that arise can be far better tackled and dealt with should you have good cashflow. Rather than being backed into a corner, you will be able to make educated and informed decisions that will best benefit your business. This confidence in cashflow also makes it easier to make important purchases in both short and long term circumstances, while also allowing you to make immediate purchases if necessary.
More Positive Perks
Some more perk of positive cashflow within your business is that it also allows you to disperse cash in the form of dividends to shareholders or owners.
Positive cashflow within your business also makes your business more appealing to a lender if you want to take on new debt and a new loan at some point. Along a similar vein to this is the fact that you will also have the ability to receive far more favourable credit terms.
In general, it is a good rule of thumb to be constantly striving for positive cashflow within your business. From debt control, to positive growth, to flexibility, you want to feel comfortable within your businesses financial positioning before you can confidently move forward.
For advice on how to better your businesses cashflow, please feel free to contact us. We’d love to help.