Cash flow, simply put, is “cash in verses cash out”. The importance of strong cash flow planning is linked to the liquidity of your business – the liquidity of the business is dictated by its cash flow.
Every business needs cash for the everyday running of the business. Cash flow can be effected by both credit sales and the purchase of assets like machinery or buildings.
Stable cash flow is important to a business and features strongly in your business planning. If you don’t manage your cash flow, you may become one of those businesses that go bankrupt every year because they couldn’t manage their cash flow.
Here are three essentials for strong, stable cash flow.
1. Draw up a budget
Make planned, conscious decisions about the way you will manage your business’s finances. Develop a system for managing your cash flow. Put rewards in along the way to celebrate saving milestones.
2. Cultivate clear lines of communication
Effective communication is vital to enable strong, stable cash flown for your business. As a business owner you will have to communicate to a range of stakeholders from creditors to employees. A lack of communication means that your business will lose focus and so compromise the daily running of the company. An organisation where there are misunderstandings arising from poor communication will create issues for your customers and thereby affect your cash flow.
3. Practice good judgement when it comes to cash flow
Managing your cash flow can be difficult since we live in a consumer society where there is so much pressure to spend. Generally attitudes to spending are passed down from our parents, which can mean you have inherited poor budgeting skills. When it comes to conducting business, you need to employ both thinking judgement skills (logical and objective thought processes) and feeling judgement skills (using your gut feelings or instincts to make decisions) in order to manage your cash flow effectively.
A good business coach can look at your specific business and advise in greater detail the way your company can always have a stable cash flow and never become one of the bankrupt businesses who couldn’t manage their cash flow.