Business cashflow can make the difference between a growing business and a failed business. This is to the point that the whole business model of QLC is based around taking businesses with cashflow issues and making it easier for them to grow and develop.
As a business, you need to know the toolset to help with your cashflow, so you have the funds to pay for your owning expenses, thereby ensuring that you keeps progressing.
So, lets get to the foundations.
Where to start with cashflow?
Business cashflow can be simply described as the cash going in and out of your business. For example, cash coming into your business from sales that you make, and the cash going out of your business from regular expenses such as paying suppliers, as well as irregular payments such as for equipment.
So a business needs to get to a point where the sales and the cash in the bank is going to be higher than the expenses going out. You can then be sure that the business survives. In which case, you have positive cashflow.
Now positive cashflow is not the same as profit. Profit happens when you factor in all aspects of bills, taxes and other expenses. You are then left with your profit. Which means, when you are thinking about cashflow, you need to think about the future, including any future expenses. It might be tempting to take all of your cash out and use it personally as you see it. But you need to keep a plan about what is going to happen, what you need to invest in. You’ve also got to avoid fees, keeps your eye on the long term plan, not so much on the short term plan.
Some key aspects to understand are as follows:
Understanding your cashflow cycle:
A cashflow cycle is different for every business. You will need to work out what it is for your business so that you know the right way to manage your cashflow. The cashflow cycle refers to the period of time that it take to operate your business. For example, if you need to order stock, you should know how long will it take to deliver, when you need to pay and how long it takes to sell it.
Depending on how long your cashflow cycle is will determine how large of an impact it will have on your funds. For example, if your funds are tied up in stock then you wont be able to use them on promotions, paying vendors or even staff. The longer the cycle, the more complicated the capital planning is. In many cases, it will become unfeasible to manage your stock in this way.
Here are some other ways you can improve your cashflow cycle:
- Smaller batches of supplies. In general, this will spread out payments and cost into more manageable units.
- Take pre-order or payment upfront for your products
- Work with suppliers for different payment plans to regulate cost
Understanding and improving profit margin:
I know it sounds crazy, but a lot of businesses do not really know what their profit margin is. This is mainly because there are a lot of moving parts and there’s a lot going on. As a business owner, you need to sit down and work out the calculations for each of your products. You can then decide which products you should invest in, which products you shouldn’t, what expenses you can reduce and how your profits can be increased.
Probably there will be some quick wins that you can do to get the profits up, such as changing the way you’re ordering or removing a cost. You can also increase the prices on products or services which are not profitable for you, and or remove the ones that are not very profitable, so you can focus on the better items.
Often businesses get into a loop, just working day in and day out, but not really achieving what they set out to achieve. Have your plan in place, understand what you want to achieve, and keep funds aside for what you need to purchase in the future.
Ability to boost capital
We understand that your cashflow is going to be up and down, and that as a business you will need to invest in new items to keep your business on track. Having funds when you need them is key, so that you can make the right decisions with your cashflow at any time.
Having a line of credit or invoice financing are great tools to help you with your cashflow. They give you the funds you need to pay for larger invoices, or invest in equipment you need without affecting your regular cashflow items. It will give you the time in your payment cycle to get all of the costs and sales back into line and ensure normally operation from day to day.
If you have not set up your line of credit, your should apply now, so that you are ready to grow and be organized when your cash flow gets too complex to manage.