Cash Flow Management and Strategy

The saying “cash is king” is true, as it is the lifeblood of any business or individual to survive in this economically challenged world. If you have a small or large business, accurate cash flow management is required in order to keep it on the right track. Bear in mind that cash can make or break your business. So, you have to manage it wisely.

It does not matter what kind of business you are in or how lucrative it is. If you unfortunately get short of money and are not able to borrow some amount, your business will surely stop operating.

For your information, profit is not like cash. Your business may be profitable, but short of cash at the same time. If you are unable to pay your employees or supplies, then it is impossible for you to stay long in business.

In order to remain in the industry, your business must sustain a good cash flow, where the money that flows into your bank account exceeds or equals the amount of cash that goes out. Since good cash flow is very essential, numerous businesses will forecast their cash requirements in the future, allowing them to take proactive steps on how to avoid financial shortage.

Cash Flow Forecasting – Essential Aspect in Effective Cash Flow Management
Forecasting cash flow involves the estimation of both cash inflows and outflows, and enables you to find “negative cash flows” where the money that comes out of the bank goes beyond the amount that goes in.

Such deficit in cash flow can be effectively addressed by simply increasing the inflow of cash and decreasing its outflows, or getting short-term financing like a credit line or bank loan to fill the gap.

Models of Cash Flow Forecasting
There are different models of cash flow forecasting used in cash flow management. A well-designed cash flow forecasting model that is based on spreadsheet simplifies the procedure of forecasting the cash flow of an organization.

The model must allow you to enter the planned expenditures and receipts of an organization for every future period, and identify the balance at the end of every period. Any repayments or draw downs of the credit line must be calculated automatically. The cash flow forecasting model may also consist of a chart that depicts the cash outflows, inflows, credit line used and credit line available.

Arranging the Financing to Cover Shortfalls on Cash Flow
In spite of the efforts in increasing and accelerating cash receipts and to lessen and postpone expenditures, you may still have requirements for short-term financing to cover off the gaps in the cash flow.

Also, bear in mind that being upbeat is crucial. Short-term financing must be negotiated just before you require the cash. Negotiating terms for a credit line or arranging right to use to other short-term facilities for finances will benefit you a lot.

It is very important to retain a good working relationship with the banker. Make sure to keep him updated of important changes in the business that may greatly affect the cash flow and of forecasted prerequisites for bank financing to finance your business’ growth.

Make use of the model for cash flow forecasting to help you foresee the right time and the right amount that may be required. By showing to the bank your capability in forecasting precisely, you will be able to establish a higher level of trustworthiness. The bank must also see you as a low risk borrower and you must be able to settle favorable terms of lending.

Secrets to Effective Cash Flow Management

• Accelerating/ increasing cash receipts
• Deferring/ reducing expenditures
• Increase the price of services and products
• Negotiate the discounts on purchases
• Invoice immediately upon the delivery of service or product
• Negotiate credit increase from suppliers

• Request multi-stage payments or deposits
• Do not pay the invoices until their due date
• Email the invoices

• Defer the capital expenditures

• Enable the customers to deposit the payment directly into the bank account by providing EFT banking information on the invoice

• Upon the renewal of service contracts with suppliers, seek out cost reductions
• Set up an orderly collection process, which includes follow-up of risky accounts
• Combine bank accounts, make use of fewer banks and negotiate low fees for banking

• Defer credit on risky accounts
• Lessen inventory levels

• Outsource the payroll to 3rd party provider
• Donate or sell surplus assets

• Invest in idle funds

• Review the telecommunications bills to make sure that you are paying only for services you need

If you would like to improve the profitability of your business, all you need is proper cash flow management.

This will keep everything on track, so make sure that you keep an eye on your cash flow on a regular basis.

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