Maintaining a positive cash flow is one of the most important parts of running a business.
Cash flow can become a big problem if you’re spending more than you’re earning. You might hide the fact for a while, but it will ultimately catch up with you. When that time arrives, you can find yourself in all sorts of financial trouble, as well as tarnishing your good name. Once a creditor gets the slightest whiff that you might be heading towards financial strife, the alarm bells start ringing and they will start demanding their money. They get particularly worried if you miss a payment. And if you aren’t honest with them they will report your situation to a credit agency and from there on it’ll go downhill.
Find out how to save yourself before you’re in too much debt.
None of this is exaggeration, it’s happening every day. A business owner somewhere has run out of options – all future credit is stopped. No more loans and no mortgage acceptance for the home of their dreams. Why? Because they let things get out of hand and cash flow dried up.
Don’t accept late payments without penalty.
There are many probabilities which can come into play that can cause your cash flow to dry up. This can happen when you are in business and you have been too lenient with payments from your customers.
Some debtors like to hang onto their money for as long as they can and if you have many debtors doing this, your cash flow can dry up. At least if you have debtors, you can do something about it by sending timely invoices and clearly instating fees for late payments.
Keep spending in check.
If you’ve simply been spending on unnecessary things, you can literally find yourself up against a financial brick wall. Some people put off paying credit card bills until it becomes too late. The interest becomes extremely high and the card is inactive with the bill remaining to be paid.
When this happens, you will have no choice left but to knuckle down and begin the long hard road of paying your creditors off. It might change day-to-day luxuries considerably, but you will be left with no option other than declaring yourself bankrupt and that comes with its own long term consequences.
A positive cash flow is simple. Don’t complicate it.
Cash becomes cash when you can readily get your hands on it, it is yours alone and doesn’t have to be paid back. If you have money due to be paid to you, it is not cash you can spend until you actually get it handed to you.
You can even take it a step further if you are disciplined enough and only regard cash as being spendable money after you have paid the rent or mortgage, invoices and anything else you are obliged to pay. What is left over after all bills are paid is considered available to spend.
Maintain a budget to monitor cash flow.
To know what your present cash flow is, you will have to draw up a budget. On one side you will have all the bills you have to pay, on the other side you list all your business’s earnings. You must always have excess in your earnings column. Failure to do something about it now will make it harder when you start missing payments and your credit rating becomes affected.
When you draw up a budget to see exactly where you stand as far as cash flow is concerned and take action to do something about it, even if you get a negative result, you’re exercising effective cash management. This way, you will always know exactly where you stand. Whatever you do, don’t borrow money from any source unless you are certain you’ll always keep a positive cash flow.