Why Cash Flow Can Be Even More Important Than Profit
Many businesses have been hit extremely hard, with thousands forced to close their doors for good. You may be wondering what you can do to ensure that your business stays afloat. Keep reading to learn about some of the best financial hacks to help you survive (and thrive) in the new Covid-19 business paradigm.
Cash Flow and Cash Flow Management
The first thing you need to understand is that budgets are all well and good—but are ineffective if a good cash flow management plan does not accompany them. Think of it like this: a budget is a projection of how you'd like your money to behave, whereas cash flow management is the reality of what your money is doing. If your accounting and bookkeeping practices do not include cash flow management, you're in bad shape.
Believe it or not, maximising cash flow itself can be even more important than profit. Don't get me wrong; profit is significant because, frankly, the whole business point is to make a profit, right? But, think about this—you may not see gains until month's end, or even the end of the year! What happens in the interim? How do you avoid tearing out all of your hair? A steady cash flow is a key to staying in business.
Why is Cash flow even more important than profit?
Cash flow is quite simply the money that moves in and out of your business. Cash flow includes hard cash and cash equivalents. Ideally, you want to maintain a positive cash flow—which means that more money is moving into the business than leaving it.
Conversely, negative cash flow means that you're spending more cash than you're earning. Now, here comes the clincher. Having a positive cash flow is terrific, but do you have a steady cash flow? You don't want your cash to come in spurts; you want your money to flow in a steady stream.
Having a positive, stable cash flow is key to success. Good cash flow means that your company can manage well on an everyday basis. This is why in any showdown with cash vs. profit, cash will win. Indeed, positive, steady, well-managed cash flow will increase your company's profitability!
So, how do you get cash flowing?
Here are a few cash flow tips that you can implement right away.
- Move your business online.
Social distancing, curfews, and lockdowns have made it difficult for businesses that rely on foot-traffic to their stores. Consider moving your business online to reduce overhead costs. Even if you keep your brick-and-mortar store, moving online is still a smart move to increase cash flow. (Be sure to utilize e-commerce accounting for your online business).
- Adjust your inventory.
Make sure that your inventory keeps up with market trends. Think about discontinuing low-selling products and services and adjusting your product offerings to meet the market demand. Get quick cash flow at the same time by discounting old stock.
- Make sure your money attracts interest.
Finding ways for sitting money to make money is another way to increase cash flow and cash holdings. Park your money in high-interest business savings accounts so that it can grow.
- Consider applying for government relief.
Take advantage of any relief programmes that the government (or private institutions) may offer.
Take it from me. Good cash flow management is what your business needs. Do this, and the chances of your business surviving this global pandemic will be high.
Questions about cashflow management? Talk to us if you'd like!