A Beginners Guide To Managing Business Cash Flow

This title is a bit misleading – because it seems like we are going to cram all of the information you need about managing business cash flow into a single blog post. But really, it’s not possible for us to talk about everything you need to know about cash flow and how to manage it in one, single 700-word article.

So instead, this will be the first in a series of articles all around cash flow – what it is, how it affects your business, how to manage it proactively and how to prevent future problems. In this post, we will look at what cash flow is, and the difference between positive and negative cash flow for your business.

What Is Cash Flow?

If this is your first experience in the financial aspects of running a business, even the term cash flow might be a bit confusing. So here’s a quick definition:

Cash flow refers to the revenues a business generates (and collects) compared to expenses it pays out over a fixed period.

So basically, it’s all about how the money moves around in your business. Broadly speaking, businesses bring in money through sales, returns on their investments or financing arrangements, and they spend money on supplies, services, utilities, taxes and all the bills that go with running a business. Positive cash flow means that a business is bringing in more money than they are spending, whereas negative cash flow means they are spending more than they are bringing in. In an ideal world, all businesses would be in the positive. But sadly, that’s not always the case. Business owners can’t predict the future (try as we might), including any unexpected expenses their business might incur, from vehicles breaking down to natural disaster or data breach. They also can’t be sure that their customers will pay their bills on time, all of which can lead to uncertainty and cash flow problems at any stage of business.

Maintaining Positive Cash Flow

The goal of every business is to stay in positive cash flow. Businesses who can master their cash flow management and stay positive are able to:

Pay Their Bills: Positive cash flow ensures employees get their correct pay on time every month. It also means the business can pay their suppliers on time, pay off debts and manage to pay everything they need to without struggling or having to make late payments.

Invest In New Opportunities: Because they have ready access to liquid cash, businesses with positive cash flows can invest in new opportunities as and when they become available, giving them a healthy advantage over the competition.

Handle The Unexpected: Back to that inability to predict the future – businesses with spare cash reserves are more equipped to handle unexpected expenses. This means that whenever equipment breaks, clients don’t pay their invoices on time or new regulations mean big changes, the business can survive.

The Impact Of Negative Cash Flow

Of course, life doesn’t always turn out the way we want it to, and business is no different. So even if a business does everything by the book, they might still find themselves with some cash flow problems. It happens to every business owner from time to time – it’s just part of the process. The opposite of positive cash flow, having negative cash flow means that a business doesn’t have enough money on hand to pay their immediate bills. It also means that they might not be able to grow their business, expand into new areas or even cover the expenses they have and haven’t planned for.

No business owner ever wants to be in the negative, especially when it comes to cash flow. Sometimes it is unavoidable, but in most cases, there are steps the business owner can take to protect their cash flow, and gain compensation from clients who don’t pay their invoices on time. This can include doing checks on your big ticket clients before providing services, and engaging in proactive debt collection practices. If you would like to know more about how debt collection could help your business maintain positive cash flow, get in touch with us today.