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Simply put: Your company’s cash flow decides whether or not your business will continue and whether it will grow. For example, if your business creditors need money within 10 days while your invoice payment date is 20 days later, you will soon run out of money. Unless you optimize your cash flow to align the inflow and outflow better, you will find your business in this situation more often, than not.
More basics on cash flow
Cash flow answers to the timing of money flowing into a company. A business may be profitable and yet not have positive cash flow if they don’t have liquid cash for expenses. A positive cash flow can help the company go from strength to strength while a negative one can push it to bankruptcy.
Given that cash flow plays such a crucial role in keeping your business running, it makes sense to ensure this function is optimized to make a measurable, positive impact.
Profit is not cash
The surplus revenue you have in the balance book after you have paid off all your expenses is termed as profit. But profit alone is not enough to sustain a business. You must have positive cash flow to ensure your business is sustainable.
Shared below are some tips to help you optimize your company’s cash flow:
Plan business expenses and investments well
Planning in advance will help you decide timelines for cash expenses. When you plan in advance, you can actually arrange for the cash well in advance to ensure readiness when the need for purchase arises finally.
Review all of your costs, including rent, subscriptions, and other payments that your business needs to pay out. After this, cut down on those that are not needed and can be done without.
Do your tax planning
Tax planning is important to avoid losing money due to lack of understanding. Ensure you know your tax laws well so that you do not end up paying unwarranted taxes and then chasing returns.
Streamline your staff
For a startup or a growing business, it is ideal to invest in staff once the business is established. Outsourcing requirements can be a great option for these businesses since it is reasonable and provides access to trained resources as well.
A new year is a good time to revisit contracts. If your customers have been genuinely happy with you, there is not much reason for them to choose not to review the situation once and review your contracts.
Utilize available software tools
Tools that help you streamline your cash flow are available. You need to know how to use them best. These can help you manage cash flow efficiently and more accurately.
Diversify your customer base
This may not be a strictly accounting solution, but it helps ensure your cash keeps flowing in. A diverse customer base means you are not relying on a single paying customer for your revenues.
If you are a startup or a growing business, you will still need to factor in these critical functions alongside business development.
Effective cash flow optimizing could mean the difference between your business hitting profitability but struggling to survive, or ascending the growth curve rapidly and without hassles.
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