Financial planning is the most important factor, to run a household, business and big organization. Pooling the funds for the funding requirements is important as the requirement for the business may arise at anytime. Profitable business often has the cash crunch that makes them vulnerable for the next level of growth in the business. Managing a robust cash flow is a challenge as if there is no effective collection system; there could be a situation when there is no fund to finish the production, and deliver the goods or services and you has a more than 120 days debtors still waiting to pay for the credit sale.
Keeping in mind a few important rules of thumb when it comes to cash flow needs of the business will keep you afloat and let business function without any breaks
- a positive cash flow is ideal for the small business, after provisioning for all the expenses the profit that is left, has to be realized , that shows the financial health of the business
- cash flow is not merely profit or ROI it is how soon can you channelize the inventory into stocks, and turn into a sale, and realize the cash proceeds, this cycle of cash outflow and inflow has to be consistent and any change in one leads to a dependency on other factors
- a negative cash flow will be generally is not a good sign for the business, a quick fix solution is required to see how the cash is drained from the business is not being recouped back, more info hereabout how to reduce expenses that are variable and can be cut till you have a good cash flow
- a breakeven point has to be arrived where you can have profit with a good cash flow as a small business cash flow is extremely important, as there is a lot of dependency on how cash is re-pooled into inventory and to be reuse din the business, the profits can be re-ploughed back to the business, while expansion or additional units are added
- keeping a tab on how much the expenses are, classifying them into fixed and variable is important, to reduce the variable nature of expense and increase the product scalability and add in more customers is the only way to arrive at a desirable profit state
With many ways to finance your small business, lending from private borrowers , family friends for a short term that can be repaid easily will be better choice, for business expansion, there are other ways to channel finance the project.