Why cash flow management is so important for businesses

Whether you're a newcomer to the business world or a seasoned old hand, careful cash flow management is absolutely essential to ensure that you can keep things running as smoothly as possible without needing to keep worrying about the bottom line. However these things are certainly easier said than done, so it's always helpful to have some good advice on hand.

What is cash flow?

We'll start by examining exactly what is meant by cash flow. Basically, this phrase means the money coming into your company, as well as the money leaving it. Essentially in order to be successful, you need the former to be in excess of the latter.

Things that count towards money coming into the company include things like payment for products or services, bank overdrafts or loans, external investment, shareholder investment etc, while outgoings include rent costs, operating costs, payment for fixed assets, wages to staff, payment for materials to suppliers and payments on loans.

So more in less out?

In a nutshell that's really all there is when it comes to good cash flow management - ensuring that there's more money coming into the company than there is money leaving.

Keeping on top of things

Rather than waiting until the end of the year, or even the end of the month to see if everything works out, it is much better to be proactive when it comes to cash flow management.

Good financial management and preparation is necessary to stay on top of things at all times. You can do this by conducting annual internal audits to make sure that everything looks on track, as well as hiring financial experts to take a look at projected targets.

Stay focussed and realistic

While it's easy to get carried away with potential earnings, you need to keep your feet on the ground if you want to make sure that your cash flow management is sensible.

Have your financial department draw up forecasts long in advance, based on projected numbers for both best and worst case scenarios. Always make sure you know exactly what you are going to need to do should things take a turn in the wrong direction.

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