Cash Flow in Business
What is cash flow in business? Cash flow is the sum of all the cash received into your business, less all the cash payments being made from your business. Positive cash flow is when there is more cash coming into the business than is being paid out of it. Negative cash flow is when there is more cash being paid out of the business than is being received by the business.
Cash flow business issues arise in a small business for two major reasons:
- The small business doesn’t have enough revenue (gross income) coming into the business compared to its expenses, and/or
- The small business doesn’t have good internal financial management and administration procedures in place to support the business. This could mean the business has difficulty collecting its accounts receivables; it has too much cash tied up in stock; and/or it is spending too much money on business overheads/expenses/assets.
Many small businesses mostly focus on gross income and profit – before or after tax. While both are important in business, cash flow is the life blood of all businesses, and without it they eventually die.
Think about blood in relation to your body. If you lose all your blood, you will die. It is the same in business: have no cash and the business will eventually fail. While a business can sustain negative cash flow for a while if it has ample cash reserves, most small businesses do not, so consistent negative cash flow will wipe out a business.
Yet, very few small business entrepreneurs spend much time thinking about cash flow or understand how critical a business driver it is. The key transactions in business that affect cash flow are:
- Sales (cash and credit).
- Purchases (inventory and business expenses).
- Business loans (new and repayments).
- Business assets (buying and selling them).
- Investments (new and repayments).
The key principles of good cash flow management are simple. Firstly, the small business needs to ensure it has more income coming into the business than expenses; and the business needs to have its accounts receivable paid on time so it can pay its own creditors.
I have developed the SPEARHead System™ – 50 Strategies For Supercharged Small Business Cash Flow to support small business entrepreneurs around the world get to grips with cash flow in business issues, so that it is a thing of the past. Why the SPEARHead? Well, the system addresses all the cash flow issues in small business as follows:
S – Sales Receivables
P – Purchases and Payables
E – Expense Management
A – Asset Acquisition
R – Residual Cash
Head – How does your business ‘head –off’ or ‘SPEARHead’ its competitors in the market?
It is critical that each of these factors is actively managed to improve the cash flow in business. Equally, cash and financial management is not necessarily the primary skill set of a small business owner, so it is important that they get help. An accountant or business manager can offer invaluable assistance, as can a book keeper or personal assistant, as they can collect accounts receivables outstanding; they can help with expense management; they can look for and perhaps negotiate for c cheaper input costs for the business. If the small business owner asks others to help them in managing their business, they can work on the parts of the business they are good at, which is very often the sales or business development side of the business.
All parties working together will see the cash flow business issues reduce or hopefully be a thing of the past. Doesn’t that sound attractive? I think so.
If you would like to know more about the SPEARHead System ™ and how it might help minimise the cash flow business problems in your business, please go to www.adelemclay.com/free-resources to download my SPEARHead System™ for free.
Could some guidance from me be helpful to you? If so, please arrange a free 30 mins Skype strategy meeting with me. Here’s my calendar to book a meeting. I’d love to support you in some way to gain ‘seductive clarity’ in any aspect of your business or life.
Other articles on Small Business Cash Flow:
Small Business Cash Flow – The Ultimate Guide
Cash Flow Problems in YOUR Small Business
Small Business Problems – Why are YOU in Business?
Small Business Cash Flow Problems
Cash Flow Projections – Important in Business?
Projected Cash Flow – Relevant in Business?
How to Solve Cash Flow Problems: Inventory Turn
