Every business strives for growth. If the market is competitive, there is an even more need for finding growth opportunities. Some businesses pursue it in a cautious manner, while others tend to be more risk tolerant.
Being cautious makes for slow progress, while having an appetite for risk can lead to higher returns in less time. That is not to say that you should jump into every other investment or venture. Keep your high-risk measures to a minimum regardless of what people tell you.
One of the consequences of opting for high-risk measures is that you can mess up your cash flow.
For example, if a business owner strives for rapid growth, they’ll take out a loan. Most often they aren’t able to pay off the loans with their sales profits alone. This situation can trigger a cash flow crisis. An employer has many other people to pay off before loan servicing, i.e., employees, vendors, overhead costs, etc.
To illustrate by another example, a business may procure more goods than it can sell. It blows out the reserve fiscal cushion, which can lead to a similar crisis.
This can be disastrous for businesses, and it can easily lead to bankruptcy.
As a business owner, you should make attempts to avoid this because not only is the business at stake, but you have obligations towards those working for your company.
On a side note, if you wish to get deeper into finances, you can opt for the right qualifications. A CPA, CFA, CMA, or CFP can not only enhance your understanding but also improve your career prospects.
It can also help you manage your business more sustainably. A Professional exam review from Wiley can help you do better on your exams. Alternatively, as a business owner, you can hire someone with the right qualification to manage your accounts.
With that said, here is a list of a few tips to manage cash flows, so that not only your business manages to stay afloat but grows steadily as well.
1. Evaluate your finances:
It usually goes without saying that you should be evaluating your finances if you are in business. You’d be surprised how often this crucial step gets overlooked in the larger scheme of things.
Business owners focused on growth tend to overlook the facts on ground as they pursue their idealistic vision. That is certainly a recipe for disaster and paves way toward bankruptcy. You want to avoid treading this path at all costs.
The implications are so severe that you should instead take measures to avoid this outcome.
Therefore, what you need to do is conduct a proper evaluation of your company’s financial situation. You need to look into your budget in greater detail.
How much is your expense versus your income?
Will you be able to balance the two?
If yes, will you be able to pursue growth?
The question about growth should be the last thing on your mind. If you do not have a proper budget or if your expenses exceed your income, you need to sort the basics out first before moving on to other things.
2. Budget accordingly:
Once you are done with the evaluation, the first thing you need to do is streamline your finances to avoid negative outcomes.
Thus, set up your expense costs in accordance with your revenue from sales. A proper budget can help you streamline things for the next year, so that you can focus on improving your services without worrying about the costs.
You can create a budget by taking stock of your income or investments and then deciding on your expenses. Moreover, you should also set aside spare fiscal resources to deal with untoward situations.
Furthermore, since your employees drive your business, make sure you reward them accordingly for a job well done. That is to say, you will need a separate budgetary allocation for employee compensation and bonuses.
You should always strive for a budget surplus rather than a budget deficit, and as long as things move in the right direction, you will not have to worry about cash flow issues.
3. Cut unnecessary expenses:
If you have done the financial evaluation and set up a budget for your business, but things aren’t moving in the right direction, you need to dig deeper.
- Are there any areas where your money is getting wasted?
- Do you think it is wise to channel your money in those directions?
These are the sort of questions you should begin with.
Once you have your answers, you should start cutting the unnecessary expenditures. For example, if you run a store, and certain products are not in demand, get rid of the large stockpile and make sure you don’t order any of it anymore.
You need to ensure that everything you spend money on yields the desired gains. You can do this by spending on things in demand.
If you are already wasting money on unnecessary expenses, you need identify those areas and fix the cash flow leaks.
You can predict whether there are tough times ahead in your business.
One way is to keep up with the news reports, so that you are informed about matters related to the market.
For example, if you run a tech company and new taxes get levied on tech products, you want to take stock of these matters while you go ahead with making your budget. If you keep your ear to the ground, you would be able to make informed and proactive changes to your plan.
Likewise, you can quickly sell out the items that are soon to fall out of demand with the customers. Give discounts to rid yourself of the remaining stock. At the end of the day, you’ll have lost nothing and gained by ensuring proper resources are channeled into products that are forecasted to do well.
Not only will this resolve your cash flow issues but also help you pursue growth as you show flexibility in the face of unfavorable circumstances.
Cashflow management is of the essence for the success of any business. Identify cashflow wasting areas and get rid of them. Evaluate your business: How much goes in (revenue) versus how much comes out (expense). Make sure your budget is appropriately allocated toward servicing areas of the business with greater potential for growth.