InTents August/September 2020 - 38

business | management

Cash flow strategies and profits
Follow these practices for positive cash ﬂow.
by Mark E. Battersby

ash ϐlow is the lifeblood of every
business. In fact, according to a
recent U.S. Bank study, poor cash ϐlow
management causes 82 percent of U.S.
business failures. Although seemingly
counterintuitive, many experts advise
putting cash ϐlow management
before proϐits.
While proϐits are how a business
survives, a failure to manage the
operation's cash ϐlow can mean running
into problems that one proϐitable
accounting period might not be able
to offset. Another study, this one by
Intuit, revealed that 61 percent of small
businesses around the world struggle
with cash ϐlow and 32 percent are unable
to pay vendors, pay back pending loans,
or pay themselves or their employees
due to cash ϐlow issues.

C
Cash ﬂow management basics
According to a U.S. Bank study, 82
percent of businesses fail due to cash
ﬂow mismanagement. Use these
strategies to manage your cash ﬂow.
* Keep three- to six-month cash
reserves
* Keep inventory lean
* Run a tight ship with invoicing and
collections
* Control costs
* Extend credit with caution

Cash ﬂow management 101
In essence, cash ϐlow is nothing more
than the movement of money in and
out of the business. Cash ϐlows into the
business from sales of goods, products or
services. Money ϐlows out of the business
for supplies, raw materials, overhead
and salaries.
An adequate cash ϐlow means a steady
ϐlow of money into the business in time
to be used to pay those bills. How well
an owner manages the operation's cash
ϐlow can have a signiϐicant impact on the
bottom-line proϐits of the business.
Often, an operation's cash inϐlows
will lag behind its cash outϐlows, which
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leaves the business short of money. This
shortage, or cash ϐlow gap, represents an
excessive outϐlow of cash that may not
be covered by a cash inϐlow for weeks,
months or even years.
Properly managing the operation's
cash ϐlow allows the cash ϐlow gap to be
narrowed or closed completely before
it reaches the crisis stage. This is usually
accomplished by examining the different
items that affect the operation's cash ϐlow
and looking at the various components
that directly affect cash ϐlow. This analysis
can answer important questions such as
the following:
* How much cash does the
business have?
* How much cash does the business
need to operate, and when is
it needed?
* Where does the business get its
cash and where does it spend it?
* How do the operation's income and
expenses affect the amount of cash
needed to operate the business?

Controlling inﬂow
In a perfect world, there would be a
cash inϐlow, usually from a cash sale,
every time there is an outϐlow of cash.
Unfortunately, this occurs very rarely in
our imperfect business world, thus the
need to manage the cash inϐlows and
outϐlows of the business.
Obviously, accelerating cash inϐlows
improves overall cash ϐlow. After all, the
quicker cash can be collected, the faster

aug-sept 2020

7/21/20 10:59 AM
InTents August/September 2020

Table of Contents for the Digital Edition of InTents August/September 2020
