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Focusing on the money that is driving your business

ladywithmoney30383826.jpgWhat does the cash flow situation look like for your business? Are you doing everything possible in order to ensure it is healthy and that you aren't going into the red? The cash flow is driving your business and it is one of the single most important aspects of your company. Cash flow simply provides you with a measurement of how much money your company is generating. It offers you information about the health of your company and if you are worth anything in order to sell it if you want to.

Not only does cash flow help you learn about your company's financial health, it helps you with other things including the following:

  • Borrowing loans for your company

  • Pricing products correctly

  • Purchasing raw goods

  • Extending credit

  • Increasing collection process

  • Reducing costs

  • Timing your account payables

  • Determining if you can purchase expensive things

  • Deciding if you can bring in new hires

So how can you become more aggressive with your cash flow in order to ensure you won't have problems? First, you need to start with quality cash-flow forecasting. Make sure you are using accurate numbers that will help you to predict where your sales are going to be, how much money will be leaving your company, and how much money you will actually make. As you start forecasting correctly, it will be easier to develop a stronger system as far as collections go and your major purchases.

Second, you need to add in padding room. There is no real way to predict sales as you never know when your customers buying behaviors will change and they stop buying due to financial restrictions and other problems. For this reason it helps to add in some padding room for your company where you will have a little breathing room with your cash flow to dip into cash reserves if you do have some drops with your sales.

Third, make sure your numbers are accurate. In order to have legitimate numbers, you need to use accurate numbers. Update your spreadsheet often in order to start tracking changes that are happening with your sales. You also need to include information pertaining to your collection process. This way you will have predictable information and you can see when the customers will pay their bills and just how much credit you have extended to them.

Fourth, have each department do their own cash flow predictions. This too will help you with the company's overall cash flow predictions as each department must provide you with timely and accurate information. Using software that is easy to understand, you will have an easier time training your employees on how to use it and how to input the numbers you need to keep your cash flow healthy.

Fifth, take a look at your collections. What is happening with the sales? Where is the money you are promised on paper? Are people paying in a timely manner or are they delaying payments? If you extend credit, how much time are you giving them to pay their bills in full? Reduce the payment terms in order to acquire the money you need now. Another option is to start asking customer to pay part of their bill at the time when they complete the sale. Setting up monthly payment plans is another way in which you can start getting your customers to make their payments. Always add interest to the accounts if they become older than a certain amount of time such as 30 days or at least by 60 days.

Cash flow is the lifeblood of your organization. You need to take the time to pay attention to it in order to keep your business afloat for many years to come.

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