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How to manage your cash flow

For most companies, positive cash flow is the key element that keeps their company operating on a day to day basis. Maintaining proper control of your cash flow situation is not easy. It not only covers all the operating costs, but it also impacts you're investing and financing activities as well. Depending upon the size of your company, you have a few options to look at for managing your cash flow.

Start out by predicting your cash flow. If you are in retail, you should be aware of the peak shopping periods (like holidays and weekends) and you should know when you won't have as many sales coming in. Cash flow forecasting helps you plan your cash balance and know if you will need to borrow at certain times of the year and how much surplus cash you are likely to have at certain times. If you are considering a loan, you need to have a cash flow forecast in hand before they will consider lending you money.

Your cash flow forecast is usually done for one year or a quarter in advance and divided into months or weeks. For company's who are barley making the day-to-day expenses, a daily cash flow forecast many be needed. Pick periods in which most of your fixed costs will be spent.

Your forecast should include:
- Salaries
- Receipts and payments
- Opening bank balance
- Closing bank balance
- Excess receipts that may put you in a negative cash flow situation

By using realistic goals, you have a better chance at planning a better cash flow forecast. Never over-estimate, always try to under-estimate so you will have enough "padding" if your forecast doesn't work one month. If you look at your sales and revenue for the previous year, you can make a better determination of your current situation.

You can purchase accounting software to prepare your cash flow forecast. Accounting software is helpful as it can allow you to change your predictions due to market trends or other factors influencing your business. You can also plan for seasonal peaks and lows.

Another great method to look at if you are in a negative cash flow situation is factoring. Factoring is a common process in the small business world. Factoring is the process of selling your accounts receivable invoices to a third party who then is in charge of collecting on the invoice. The agents in charge of collecting are called factors. Factoring for small business is a great way to provide financial growth. Since cash flow is so essential in business, factoring is the best method to expand operations.

Why does factoring helps improve your business? Here are a few reasons how factoring can help:

1. Cash Flow - Factoring allows you to sell invoices to a third party at a discount, thereby giving you money now to pay your expenses.

2. Financing alternative - Factoring is a powerful funding tool for supporting growth.

3. Cash on hand now - Factoring allows for funds to be in your account quicker than waiting for invoices to be paid.

4. Simple to use - Factoring is easy to use.

5. Leverage staff time - Factoring assures that who you do business with is credit worthy.

6. Professional Visibility - Factoring allows for invoices to be collected in a professional and consistent manner.

7. Success Factor -
Factoring is a step up the financial ladder to improving your overall cash flow.

8. Funding Capacity - Again, factoring does not use personal assets as a way of funding companies.

9. No funding limits - Factoring does not have a limit on qualified invoices.

Factoring for small businesses typically takes about 5 to 7 days to set up. Your company will meet with a Business Development Officer (BDO) and submit an application and go over numerous invoices that need to be factored. After you are accepted and a security agreement is signed, the customers will be notified that all invoice collection will be handled by the factor company.

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