Positive business cash flow is one of the most important signals of good health. It means that your company is working smoothly on a day-to-day basis, that your bills and your employees are getting paid on time, and that you have enough money on hand to purchase the goods and services you need and to take advantage of growth opportunities. A negative cash flow, on the other hand, means that your financial obligations are coming due before you have the cash to meet them. This can lead to very serious problems; your goal, therefore, should be to have a positive cash flow all the time.
Creating A Positive Cash Flow
Avoiding cash-flow problems to start with is always good practice. Among other things, you’ll want to watch for risky customers who may not pay their bills on time, be careful about pre-paying expenses, and set aside money each month for periodic large bills, such as insurance.
Nevertheless, business cash flow problems will happen. If your company is approaching the end of a period and you’re looking at a negative cash flow, there are things you can and should do to bring it over to positive. For example, if you have a few customers who are late paying their bills, now is the time to remind them. If you have some bills due yourself, you may find that deferring payment on some of them until the next period will give you a bit of breathing room (but remember, this could affect cash flow later on!). You may want to sell one or more of your assets to raise the cash you need. Another option is to look to outside assistance – there are companies that can help alleviate the problems with your business cash flow through alternative financing strategies, such as invoice factoring and merchant cash advances.
Pay Close Attention
Remember that profit and positive cash flow are not the same thing. Profit is calculated on factors that may not affect cash flow, such as depreciation and pre-paid expenses. Your business may be making a profit but have a negative cash flow at the same time, and if the cash-flow situation is not dealt with in a timely manner, it could sink your business, no matter how profitable it is on paper.
You need to keep constant track of your business cash flow; it is one of the key indicators of how well you’re doing. Keeping on top of this may make the difference between success and failure.