Business cash flow can make the difference between a growing business and a failed business. With that said, QLC has taken its entire business model to be based around taking business with cash flow issues and making it easier for them to grow and develop.
As a business owner, you need to know the tool set to help with your cash flow so that you have the funds to pay for your expenses and to ensure that your business keeps progressing.
So, lets get to the foundations.
Where to start with cash flow?
Business cash flow can be simply described as the cash going in and out of your business. For example, cash coming in to your business from sales that you make, and the cash going out of your business from regular expenses such as paying for supplies to irregular payments like paying for equipment.
A business needs to get to a point where the sales and the cash in the bank is going to be higher that the expenses going out. This is to make sure that the business survives. In which case, you have positive cash flow.
Now, positive cash flow is not the same as profit. Profit happens when you factor in all aspects of bills, taxes, and other expenses. Then you are left with your profit. This means that when you are thinking about cash flow, you need to think about the future and the future expenses. It might be tempting to take all 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, and also to avoid fees. This keeps your eye on the long-term plan, not the short-term ones.
Some key aspects to understand are the following:
Understanding Your Cash Flow Cycle
A cash flow cycle is different for every business. You will need to work out what it is for your business so you know the right way to manage your cash flow. The cash flow cycle refers to the period of time it takes to operate your business. For example, if you need to order stock, how long will it take to deliver? When do you need to pay? How long will it take for you to be able to sell it?
Its impact on your funds depends on how long the actual cash flow cycle is. For example, if your funds are tied up in supplies, then you won’t 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 infeasible to manage your stock this way.
Here are some ways to improve the cash flow cycle:
– Smaller batches of supplies. In general, this will spread out payments and cost into more manageable units.
– Take preorder or payment upfront for your products
– Work with supplies for different payment plans to regulate cost.
Understanding and Improving Profit Margin
I know it sounds crazy, a lot of businesses do not really know what their profit margin is. This is mainly because there is a lot of moving parts and a lot going on. As a business owner, you need to sit down and work out the calculations of each of your product. Where should you invest into your products? Where should you not invest into? What expenses can you decrease? What profits can you improve?
Probably there will be some quick wins that you can do to get the profits up – it could be the way you order, thus removing a cost. Or even increasing your prices on products which are not profitable. You can also remove products or services which are not very profitable so you can focus on the profitable items.
Businesses often get into a loop – just working day in and day out, but not really achieving what they set out to achieve. Having your plan in place, understanding what you want to achieve, and keeping funds aside for what you need to purchase in the future can greatly help you move forward.
Ability to Boost Capital
We understand that your cash flow is going to be up and down, and that as a business, you will need to invest it items to get your business on track. Having funds when you need it is key so that you can make the right decisions with your cash flow.
Having a line of credit or invoice financing are great tools to help you with your cash flow. They give you the funds you need to pay for larger invoices or invest in equipment you need without affecting your other cash flow items. It will give you the time in your payment cycle to get all the costs and sales back into line and ensure normal operation from day to day.
If you have not set up your line of credit, you should apply now so that you are ready to grow and be organized when your cash flow gets too complex to manage.