Cash is King! You very likely have heard that expression. I do not know of any business that can operate without cash. You need cash to pay your vendors, cash to pay your employees, cash to pay your rent or mortgage, cash to pay your expenses, cash to pay your taxes, and most importantly – cash to pay yourself.
Ideally, your business will sell a product or service, collect the cash, use that cash to pay expenses, and have some cash left over in the form of profit – cash that stays in your pocket. But, cash coming from a sale may lag behind the actual sale. You may invoice your customer but not collect the cash for 30 days or more. In the meantime, you have bills to pay and need cash to pay those bills.
Cash flow is very important and every business owner should pay close attention to it. Cash flow is defined as the movement of money into a business and out of a business. The timing of when cash actually flows into a business and then flows out of a business is critical. If fact, it will likely determine whether your business will be successful or not. The timing of cash inflows and outflows directly affect whether your business will have a cash shortfall or a cash surplus.
Unfortunately, many businesses have problems with their cash flow. In some instances, this problem is inescapable. However, there are actions that business owners can take to avoid a shortfall and to promote a surplus.
Over the next few weeks, I will present a few steps that a business owner can take to improve the cash flow of the business. You can read the first step when we continue with this blog topic next week.