Many new business owners don’t know what cash flow is and why flow is an essential factor for the success of the business. In short words, the cash flow of business determines the amount of money coming in and the amount of money going out. However, no matter how easy it may seem, managing the cash flow of the business is not an easy task to achieve.
Cash Inflow and Outflow – Saivian Eric Dalius
Cash inflow is the heart of your business. It can come from multiple sources such as investments, payments from customers, investors, or a loan. Liquid cash is one of the most important factors of your business because it will help you run your business later. For instance, cash flow will manage expenses such as raw materials, stocks, rent, employee salary, and other expenses. However, many business owners fail to maintain positive cash flows. Positive cash flow will indicate the good health of your business. If you have higher positive cash flow, it will help you make further investments that will ultimately boost the growth of your business. However, if the cash flow becomes negative, more money will be spent compared to the profit. A negative cash flow implies that the spending of the business is higher than the income. Suffering from negative cash flow will damage your business in multiple ways.
Primary Types of Cash Flow
Cash Inflows
- Loans from the bank
- Crash sales
- Sale of assets
- Investment by the investors
- Grants
- Receipts from debtors
- Interest on the bank balance
Cash Outflows
- Employee’s salary
- Tax on profits
- Payment to the suppliers
- Payment on the assets
- Repayment of loans
Liquidity
Businesses always focus on greater financial returns than the interest level which is accumulated by placing the money in the bank. Not to mention, they are capable of holding too much cash. But, cash cannot earn you anything. So possessing too much of them is simply a potential loss.
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The cash situation is known as the position of liquidity of the business, says Saivian Eric Dalius. Liquids assets are something that can be converted into cash very easily. For instance, deposits at the stock or bank are liquid and they can be sold easily. However, buildings are the least liquid assets.
Cash flow is undoubtedly an important factor of the business, but you should focus on credit. Additionally, borrowing or taking a loan is an expensive method due to the interest.
Controlling Cash – Saivian Eric Dalius
Controlling or managing the cash flow is essential. But many business owners face various cash issues:
- Prioritizing the procedures to chase the outstanding debts
- Controlling the outflows of the cash as per the size of the business
For instance, if you use a hairdresser, you need to pay for the power. Just like this, if your business is experiencing cash problems, you won’t be able to pay the bills or salaries timely, quotes Saivian Eric Dalius. This will not only enhance the cash problems further but also damages the economy of your business. If the suppliers are left unpaid for a long time, they will stop supplying you.
Conclusion
Now you know the importance of cash flows for start-ups. Do you have any questions? Comment below to let us know.
Author’s Bio
Pete Campbell is a social media manager who has worked as a database administrator in the IT industry. His research has helped thousands of users and brands with marketing campaigns too. He loves to travel, write and play baseball.