Cash flow management is one of the very important aspects of managing business. What makes cash flow management very important is the stability it offers to the promoters. It also assures smooth operations of the business.
Having a well-planned cash flow statement at the beginning of each year makes the progress and cash allocation to the business easier. One can also monitor the spends and receivables.
While there are many cash-payments which need to be made on a regular basis that are time-based like salaries to staff, rental payments, utility payments, telecom and other recurring expenses which will be incurred irrespective of whether or not the business is generating cash flows. These expenses do accrue irrespective of the cash generation in the business.
In order to ensure adequate cash is available to the business to meet these expenses, having cash inflows is very crucial.
Planning sales targets and getting your sales team to achieve the goals, while ensuring regular sales is important. However, one must remember that just closing a sales target is not the only criteria, ensuring that the cash is received against the sale is equally important for planning cash flows.
Even assuming you are recovering the entire cash from sales- however do bear in mind that all sales made does not become your profit and the entire cash from your product sales cannot be used towards expenses, since you do have to pay for your purchases. It is important to understand what portion of your cash flows are towards the profits earned and from which recurring expenses are to be incurred.
To understand all this in its entirety, you need to ensure you have a one year plan of successful cash flow needs of your business on a month on month basis. This exercise is very important and should be done at the start of each financial year so that proper and timely steps can be taken and the business monitored to ensure adequate and consistent supply of cash flows – which is the life force of business.
Outsourcing CFO services maybe a good option here for SME’s to plan and manage their business finances better. Centurion Consulting offers CFO services that not only enable better financial management but is a cost-effective alternative to hiring a full-time CFO.