Cash flow is how money moves in and out of business. Think of it as a fridge. You fill it with food that you consume daily. The goal is to ensure there is always enough food in the fridge so that you do not sleep hungry. Cash inflows are what your business earns, and outflows are the business expenses.
Why a Positive Cash Flow Is Important?
The goal of any business should be to maintain a positive cash flow. That means generating more income than you are spending. But while it may sound simple, many businesses often experience cash flow problems. Some of these problems may not even be under your control. However, proper cash flow management can help you understand where your money is going and how to acquire more of it.
Types of cash flow
While a lot of people can mention different types of cash flow, the main ones are operating cash flow and free cash flow.
Operating cash flow: It measures the money generated from the business’s operations. Most business owners use it as a metric to tell them if they have adequate funds to cover expenses. Investors can also use operating cash flow to assess the financial viability of your business.
Free cash flow: It measures the amount of cash that a business is left with after paying the cost of staying in business.
What Causes Cash Flow Problems?
As stated, managing business cash flow is not easy. Most cash flow problems arise when the business owner fails to differentiate between profits and cash flow. The key to maintaining a positive cash flow does not always mean increased sales. While you can fix a cash flow problem with bigger sales, if you do not maintain that level of sales, then you will still experience cash flow problems later.
One of the most effective ways to increase your cash flow is to control your account receivable. Do not let past-due receivables pile up. If customers want products, then they should pay upfront. And if not, they should pay you in the shortest time possible. Also, conduct a cash flow analysis regularly to understand where cash flow problems are coming from so that you can solve them.
Another way to solve a cash flow problem is by getting financing. Are you in need of capital to address a cash flow problem in your business? Contact Scarlan Capital Group. We have different loan products that can be tailored to meet your needs. Give us a call.
