You are profitable but you don’t have enough cash?
Pretty soon, you won’t be able to borrow any more money or you’ll have to put more personal capital into the company. Contrary to popular opinion, profits are not the pulse of business. You can’t spend profits. Most companies go out of business because they lack quality cash flow — not because they lack profits or assets. So what should you do? Keep in mind that you must see the situation as a WAR. There are many battle fronts and many issues. If you aren’t victorious … well you’re out of business.
Here are some ideas to help you win the poor cash flow war:
Develop a written plan to increase cash flow.
Examine inventory levels.
Examine credit and collection procedures.
Examine billing practices – you can’t collect until it’s billed.
Negotiate with creditors – get better terms.
Examine staffing levels, compensation plans, and bonus plans.
Review all fringe benefit programs.
Prepare detailed cash projections with “What If?” analysis.
Why is your cash flow so important?
Every business’s financial plan and strategy is based on cash flow as cash flow statements provide an overall look at how a business is using cash and where it comes from. It contains the follow three basic elements:
1. Operating cash flow, or working capital, which shows revenue derived from sales or services and payments to keep your business operating.
2. Investing cash flow, which comes from such non-operating activities as investments in fixed assets and plant and equipment. It also includes nonrecurring gains or losses (from, say, the sale of a company vehicle) and other sources and uses of cash that aren’t part of your company’s normal operations
3. Financing cash flow moves to and from outside sources, including investors, shareholders, and lenders. A new issue of stock is an inflow; a paid-off loan is an outflow. how much cash it has in credit sales and inventory. Your creditors and potential partners or lenders want to know how much cash you have on hand, not just how much cash you may be collecting or how much is tied up in your inventory.