In the world of business, there’s a saying that goes “cash is king”. It’s a phrase that emphasises the importance of cash flow in keeping a business afloat. And it’s not just a catchy phrase, it’s a fact. Healthy cash flow is critical to the success of any business, regardless of its size or industry.
Cash vs profit vs working capital
Cash is not the same as profit, although unsurprisingly, the latter is key in generating the former, while working capital is more than just cash – it’s the difference between a company’s current assets and its current liabilities. In a nutshell, it’s the bit in the middle of your balance sheet.
Cash keeps your business running
Healthy cash flow essentially means that your business has enough cash to pay its bills on time. Without enough cash on hand, you risk falling behind with creditors, which can lead to delays, late fees, penalties, and damage to your credit score.
Planning ahead
Having a clear picture of your cash flow enables you to plan for the future. You can use your cash flow projections to determine when you’ll have enough cash to invest in new projects, or to bolster your workforce with new staff and expertise. You can also use your forecasts to identify times when you may need to tighten your belt and cut back on expenses.
Healthy cash flow is essential for growth
If your business is expanding, you’ll need cash to finance that growth. You may need to invest in new equipment, develop your facilities, or hire more staff. Without an understanding of cash flow, it will be difficult to plan and take advantage of these opportunities.
Monitor your cash flow regularly
It’s essential to monitor and forecast your cash flow regularly, so you always know where you stand and are in a more informed position to make decisions.
There are several ways to improve your cash flow. These include:
- Offering discounts to customers for early payment
- Negotiating credit terms with suppliers
- Collecting cash from customers in a timely manner
- Reducing expenses
Use technology to manage your cash flow
There are several tools available that can help you manage your cash flow effectively. For example, accounting software can help you track your income and expenses, generate cash flow statements, and create forecasts.
Cash, and a sufficient flow of it, is essential to the success of any business. By checking it regularly, taking continual steps to improve it and using technology to manage it effectively, you can ensure that your business has the cash it needs to thrive.
Our Digital Accounts Team are here to make your life easier. If you need any advice or assistance with managing and projecting your cash flow, we’re on hand to help. Get in touch with your usual BHP contact or call 0333 123 7171.
