The key to a sustainable business is its financial and cash flow management! Your working capital helps you define realistic business growth plans, goals and grab the opportunities on your way. Whether you want to scale up the operations, expand the existing structure, purchase state-of-the-art machines and equipment, or need help in maintaining your day-to-day capital, cash flow management plays a crucial role for all of them.
Cash flow management strategy prevents cash crunch scenarios as it helps you track, analyse and improve the financials of your business.
Multiply your cash in hand: The multiplier effect is a common business term, meaning the number of times a particular note rotates to generate business transactions in the market. Blocking your savings for a longer duration leads to a lower cash flow. So, try and keep the cash in hand rotating by maintaining cash liquidity in the form of reinvestment in your daily business activities.
Prioritise cash flow over profits: The secret to successful business growth is all about how you manage cash flow in the business. Many financial figures factor into your cash flow like accounts receivable, inventory, accounts payable, capital expenditures, and taxation. Always check your earnings against your break-even point for positive cash flow. If your earnings are high, and you still face a cash crunch, then it is a sign of poor cash flow management; you must evaluate your finances to resolve the problem.
Set an emergency cash reserve fund: No matter how well you plan, risks are always present in a business. Having a contingency fund gives your business the flexibility and security to sustain during economic downturns. A proper cash management plan keeps your assets well-guarded and insures your product and machinery. Ensure you have enough to cover at least three to six months worth of expenses.
Innovate constantly: Change is the new constant. Regular research and periodic analysis, alongside constant adaptation to what’s new in the market, drive business and keeps you a step ahead of your competition. The same rule needs to be applied when it comes to cash flow management. There are various products available that can help manage the cash flow because of the features they come with, like easy repayment options, no pre-payment charges and the most negligible processing charges. These can become critical factors in solving cash flow issues and help businesses capitalise on various potential business opportunities. You can also check out for such feature-rich Poonawalla Fincorp affordable business loan to encash business opportunities that come your way without hampering the working capital.
Set prompt Payment terms: Another option for managing cash flow is setting up aggressive payment terms with your customers. It is imperative to establish clear payment terms with a faster turnaround to the invoices raised. It helps you to manage cash flow flow in your business effectively. Make sure to lay out the terms of when the payments need to be made in the contract. In particular, for projects which require heavy resources, it is best to set a milestone-based payment terms to cover necessary expenses.
Continuous Monitoring: Be it business expansion, starting a new section, growing staff, etc; all are a good sign that your business is doing well. However, it also adds to your cash flow management responsibilities. Keeping track is an essential part of owning a business, but it should not be your only focus point. Assign a trusted employee to monitor it for you and keep you up-to-date.
Borrowing Options: For a smooth functioning business, you constantly need cash flow for payroll, rent, raw materials, overheads and EMI / debt payments. A business should adequately maintain its cash flow, but it is a smart decision to avail of an unsecured business loan at the time of cash crunch. It provides credit for a flexible tenure at lower interest rates and without any collateral. Being ready with your borrowing avenues is always a quicker solution to address the cash flow crunch.
A steady flow of cash across the business supply chain ensures the smooth running of business operations. Access to a quick financing option can facilitate cash flow, thereby enhancing the liquidity needed in the supply chain. You can apply for an Unsecured Business Loan with Poonawalla Fincorp, where we have a simplified loan application journey with quick disbursals.
Now that you know the strategies to manage cash flow in a business, plan and account for the ones that successfully work as per your current business stage to help you grow.
How magical was the day when you discovered your career path? After a lot of research, putting in so much hard work, late nights, your heart and soul, you have become what you are today.