Cash flow is one of the most important aspects of running any business – large or small. It is one of the single most imperative reasons why many businesses fail – regardless of how good the business is. Managing cash flow therefore is vitally important in the smooth running, survival and success of a business. This activity will look at what cash flow is, and use some examples to show how cash flow can make the difference between success and failure. Failure in this case means collapse. If you are penniless then you are unable to pay your debts. We often use the term ‘bankrupt’ to describe this but strictly, only an individual can be declared bankrupt. Companies are declared as in debt. The principle however is the same. Some firms deal with so-called ‘personal insolvency’ which effectively means bankruptcy so the use of the terms can sometimes be confusing!
Let’s reminisce the yester years when credit lines flowed like water and all you needed to do was call the bank to get set up with short-term financing when you needed it? Gone are those days , now small businesses are being forced to find other ways to free up much-needed capital.
Ever heard of a trade network? Here’s how it works. Let’s assume a Business X wants to open a booth at an exhibition but it needs cash to do so. Business X has broken-down mechanic equipment that Business Y is interested in fixing and selling. After selling the equipment he can use the cash as bartering dollars to pay for another network member’s Business Z display booth. Trading is an excellent means to conserve cash and it can really pay off, quite literally.
so many businesses bill clients on a 30-day cycle. But if you have to pay your employees twice a month, this can cause cash-flow difficulties. Instead invoicing clients twice a month can be a great option. One company did so and reported that more than 90% of its clients didn’t mind the change because it still allowed them 30 days to pay. Another issue is bad credit and for that an effective way to prevent it, is to send pre-lien notifications to each customer on all jobs exceeding a certain sum , lets’ assume 3000 dollars The notices should state that the company is protecting its right to place a lien on the merchandise that was purchased if the bill isn’t paid within the pre-set time. One large company reports that after sending out the notice, bad debt shrunk by $350,000 in the 8 to 10 months.
To change your future, you must remember your past. To increase cash flow a merchant cash advance is a great way to go. It is the bright business future to overwhelm every bank denial in the past. Choose wisely, because your future is crystal clear with cash, because with cash flow you cash success.