Protect Your Business with These Cash Flow Rules

Do you know what your business’s cash balance is? You should. It isn’t something that should be overlooked so nonchalantly. After all, your business’s cash flow is the lifeblood of all operations. It helps to eliminate all of that the constant worry that comes with not knowing what your cash balance or what you can expect it to be in the near future.

With the right fiscal balance you can easily find the kind of financially successful business you deserve. Not only will it help you organize the way everything will run but it more importantly increase the likelihood that you never run out of cash. Here are some rules to follow for maintaining a cash flow balance:

  • Growth eats into your cash reserves – It almost doesn’t seem very fair to a business owner. Here you are growing at a quick rate only to find that all that growth is sucking up your cash reserves. As a business you are paying for products and inventory up front to meet demand, only to have customers pay months later. Most business owners unfortunately don’t realize this happening until its too late. Be careful that your growth doesn’t cost you too much cash but instead utilize working capital. Remember this sound piece of advice – The faster your business grows, the more financing you’ll need.
  • Inventory costs alot – You can’t sell anything if you don’t have anything. In order for you to have product to sell or supplies for your service, you need to spend money up front. There aren’t that many suppliers who are willing to give you product without being paid within a reasonable amount of time. For every dollar you invest into inventory is a dollar you don’t have in your cash reserves.
  • Working capital is a business’s best friend – In case you don’t know, working capital is basically the money left over after you subtract all your current liabilities from your current assets. It is the money in the bank used to pay all of the operating costs and expenses . It is also used to buy inventory during those times when you haven’t been paid by clients or customers.
  • Banks don’t have a sense of humor – Don’t expect to find any sympathy or big laugh from a lender when it comes to money. It is important that you plan ahead for any type of circumstance. If something in your business’s near future that can’t be avoided and will require an amount of cash such as a new opportunity or a problem with customers paying, the sooner you let your lender know there may be a problem the better. Put together some charts and a realistic plan on how to overcome to avoid any potential problems.
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