Cash flow refers to the movement of money into (inflow) and out (outflow) of a business. Money here refers to cash and cash equivalent, thus cash itself and other short term assets that can turned into cash within a period of a year or less ( examples include savings and current accounts, a 3-month fixed deposit and a debt payable with a 6-month period). It is important to state therefore that cash flow is not only about cash and its equivalents as mentioned as well.It is noteworthy that cash and cash equivalent are arguably the most important aspect of doing business. Without these there would be difficulty in buying materials and other resources for provision of services or supply of goods, remuneration of employees, settlement of debts owed, compliance with statutory payments, among others. The result is therefore disastrous: employees may resign, government may close down the business, to mention a few. In this article, I share with you how you can improve the cash flow of your business. I bring to light four (4) very vital principles, which if adhered to will greatly enhance your operations.
Ways to improve your cash flow
- Improve your revenue-generation capacity: Revenues are the economic resources received from your normal trading activities. For example, money made from sale of food and drinks by a restaurant. Assess the ability of your firm to generate revenue and seek to improve it. Set revenue targets and institute measures to achieve such targets.
- Control your expenditure: Expenditure refers to money spent on various aspects of business operation. For instance, money for office supplies, payment of salaries and wages, utilities purchase, among others. Seek to control how much is spent on these. While some may be reduced, others may not difficult. Setting a budget will help in this regard. A budget is a financial plan on how much to earn and how much to spend for a forthcoming period. Assess expenditure against budgeted amounts, analyze any variances (differences) and take corrective action.
- Maintain cash on hand at optimum levels: It is crucial to maintain not too much cash or too low cash on hand. To achieve this, you must assess your cash needs for a given period and hold cash sufficient enough to meet such needs.
- Invest “excess” funds: Sometimes, there may be funds that may not be needed for any operational use for a period. Such funds can be invested for additional funds. You must ensure that the investment is a credible one and that your firm will not lose invested funds.
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