Usually, the Treasurer is the manager of cash. At least in large corporations. Everyone in business benefits from knowing about cash flow. A company keeping track of it, is far better off than one focusing only on revenue streams. Cash flow is the movement of money in or out of a business, measured during a certain period of time. To prosper, a company must keep cash flow healthy.
One reason cash flow is an important measure, is that investors and analysts highly value a company’s ability to steadily generate positive cash flow from its daily business operations.
Everyone can have an influence on cash flow. To become more of an expert in cash flow control, consider these practices:
1. Don’t focus on profit only, focus on cash flow too
Too many firms are without cash flow plans. However, many do have forecasts of profit margins. It is generally easy to be blinded by profit margins.
It is a mistake focusing only on sales revenues and profit, since a company can actually have a good profit and still be out of cash – running the risk of business failure.
If your cash flow is in order, your profit will be in order. A good cash flow is necessary to survive.
2. Get a feel for dips
Knowledge is power and so also when it comes to cash flow. It is possible to have a feel for cash-flow crunches. Usually, they don’t just appear out of the blue. Use the cash flow statement; it helps you keep track of the company’s cash status.
3. Stay tuned on outflows
Make sure that you keep track of accounts payable. Manage outflows so that you can delay payments as much as possible, when cash is tight. Make sure you pay before due date though, if not you may have to pay fees.
4. Be a master of costs
One way to balance receivables is to reduce expenses. Check recurring costs. Small streams make great rivers; which means that even if you manage to reduce small costs – they may add up to savings.
5. Line up several sources of finance
There are always unexpected expenses coming up; things you may not have been able to foresee. When you find yourself facing these, it is good if you’ve got extra sources, such as a line of credit.
6. Maximize receivables
Make sure you’ve got the best terms possible. Know and establish clear payment terms from the beginning. Be sure to know when a payment is overdue to be able to manage your cash flow. Invoice rapidly; don’t wait too long – invoice as soon as the work you’ve done has been completed.
7. Stay on top of contact data
Make sure all billing information is up to date. Keep a current database of the right information to customers. If you’ve got faulty information, time will be added to the collection phase.
8. Consider outsourcing receivables
If you find it hard to keep up with all of the billing functions, consider outsourcing the receivable function. It will cost you a few percent, but you’ll be able to focus on core business.
9. Have someone monitor your cash flow
Allocate a dedicated person to track the money going in and out. Keep a close eye on daily credits and debits to ensure there is always sufficient cash in the bank.
At the end of the day, cash really is king.
Among other things, see to that the designated person set cash flow targets, prepares, and maintain a cash flow forecast that is updated once a week, with the purpose of providing an accurate outlook for the following six to 12 months.
10. Keep your bank close
Every organization needs to find cash for unexpected expenses or for important investments. In these cases, it’s important to have several sources of financing lined up – such as a line of credit.
Keeping the bank informed over any unforeseen outgoings and changes in forecasts, can be crucial. If you’ve got a feeling something is not what it should be, let your bank know.
Try to have a fruitful and trusting relation with your bank. Bank men may become your best friends when times are rough.