Cash flow requirement for the business can be a big hurdle for the long-term growth. They keep troubling a business firm. Like at times, sales go up and then they go down, sometimes margins are good and then they fall out. Cash flow can easily swing back and forth in such circumstances.
Therefore, to ensure a little bit of stability you need to accurately analyse your month’s cash flows and costs. It doesn’t matter what has happened during the years, in any way you need to be at the top of the pile of the funds that you’ll be requiring for the scheduling and covering the recurring operation costs which will be there irrespective of if you have made sufficient sales or not. One has to do this process for 12 months cycle to ensure they make better decisions in terms of cash flow.
Next step is to determine the amount of fund available in cash and how much cash can be invested into the business and what other sources of cash in place are. Then you need to plan your cash flow in such a way that the fixed costs, accounts receivable and existing accounts payable can be realistically studied and noted down for the upcoming weeks and months. Besides, if your cash is always tight, then you need to do your cash flow study on a weekly basis. Because you’ll find too much of variations over a course of month to do it on a monthly basis.
After assessing these points, next you need to finance your cash flow. However, process of financing cash flows is unique in every case as it depends on the industry, sector, model, business, stage your business is in, your business’ size, your available resources etc. Every business first needs to assess the resources of financing the cash flow. They need to assess owner’s investment, trade financing, receivable discounts on the early payments, government remittances, deposits on sale, third party financing etc. Once you’ll assess all these options, then you’ll have a thorough knowledge as well as understanding of all the options available to you for financing your cash flow depends on your certain business model. Therefore, at this moment you’ll be in a position to entertain future sale opportunities that will fit into your cash flow.
However, one must understand that financing your cash flows is not about taking loans from someone or from bank. It is the process of keeping your cash flow positive at the minimum cost. Besides, one must always market and sell what they can turn into cash flow, as the marketers will assess the ROI of your marketing initiative. However, if you can’t cash flow your business to complete the pending sales and collect the proceeds then there will be no ROI to be measured. Therefore, if your business features uneven sales and margins, then you can only enter the transactions that you can finance.
Therefore, in order to maximize your marketing effort while also reducing the unpredictability of annual sales cycle, you need to properly access your options before financing your cash flows. This will ensure a long term growth and stability for your business.
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Prasanth is an author for Specialised Business Solutions(Sbs.net.au) site, Best accounting firm based in Brisbane. He has been writing articles on Financial planning and Xero Accounting for accounting firm.
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