Cashflow management – How to keep your business out of debt

In recent years people have become accustomed to thinking that credit is a necessity, with business owners often choosing to borrow first and ask questions later. By focusing on managing your working capital and monitoring how cash is spent and saved you can avoid going into unnecessary debt.

Managing cashflow is basically monitoring the money that comes in or gets received by the business (cash inflow) and the money that comes out or gets spent by the business (cash outflow).

One of the key advantages of solid cashflow management strategy is that it builds your business on your own finances. This takes away the dependency on short-term money loans that can reduce your profits and severely affect your bottom line.

Your business should aim to achieve an overall positive cashflow standing (more cash is being received than cash that is being spent) during the trading year, but expect to see some instances of seasonal variation which may influence your overall position.

 
Managing your Cashflow

First of all, to be able to calculate your cashflow budget, the three things that you need are your cash inflow, your cash outflow, and the difference.

• Compute all actual cash on hand; available cash, current balances in bank accounts, currencies at hand.
• Document every cash inflow that’s expected to come and when these will be coming in; all types of income, interest, collections on overdue debts, earnings, and so on.
• Likewise, document every outflow on expected expenses for a certain period of time. Anticipate how much overheads and taxes will be, as well as payroll, equipment, debts and other account payables.
• Record dates and monitor the cashflow movement following the three points above.

Keeping track of your cashflow is a simple yet often overlooked effective tool in managing your retail business’ budget. It allows you to closely follow the money coming in and out, let’s you easily determine whether your cashflow stays afloat or not, and gives you the confidence and assurance to predict periods of high and low cashflow.

If you have equal amounts of cashflow quickly coming in and out, you need to identify which payments need to be prioritized, and which expenses can be held off on. How will you be able to procure stocks for your inventory in time? Your payroll and your office lease need to be paid on time, how about your other expenses? Are your suppliers willing to give you a credit extension for the payment of your inventory? How can you effectively collect debts?

Managing your cashflow budget is a meticulous task for the business manager. It demands daily attention and an acute sense of timing to calculate and manage the balance between the cash inflow and cash outflow. Whilst it takes patience and discipline to follow any cashflow plan, it will eliminate a big part of the financial guessing game. You will be more in control and informed about where your money is going, which will in turn allow you to better monitor the growth and operations of your business.

If you find yourself in a troublesome cash flow position and need immediate help, it may be worth considering some form of financial assistance from a cashflow financier