Most business owners will agree that cash is the lifeblood of any business.
And it’s so easy to see why.
Without enough cash, a business can’t pay its expenses or even expand.
Unfortunately, very few entrepreneurs are willing to put in the work to manage their cash effectively.
If your business is struggling to meet its financial obligations despite having adequate cash inflows, this is a sign of poor cash management. Reducing the risk of liquidity problems can help your business stay afloat even amidst financial difficulties. Besides, your business has a better chance of survival when proper cash management tools are in place.
Fortunately, the use of cash management helpers such as a Carnation money counter machine or an automated billing system that accelerates the payment of receivables can help sustain the financial stability of your business.
So, here’s a breakdown of what cash management is and why it’s essential for your business?
What Is Cash Management?
If you don’t properly understand what cash flow is, you might miss the warning signs of cash problems in your business.
So, let’s start by defining the term cash flow.
Cash flow is the flow of money in and out of your business. The money that comes in is called inflow, while the money that moves out is called outflow. Every business owner should aim to have a positive cash flow. This means there is more money coming in than cash that’s going out.
Your business inflows come from cash sales and the payment of receivables. Cash inflows may also be sourced from borrowed funds or incomes from other sources. Cash outflows are a result of payment of business expenses.
Good cash management helps you to get a clear picture of your revenue and expenses. This way, you’ll have enough money to meet your obligations and make enough profits for the sustainability of your business.
Strategies You Can Use For Effective Cash Management
There are many strategies that businesses, both big and small, can embrace to help them manage their cash effectively.
While some cash management options such as cash automation are simple, others such as managing your business expenses will require some prior planning for them to work.
1. Cash Automation
Investing in cash management technology is vital for any business that deals with cash payments.
Smart cash management solutions such as a cash counter machine ensure accuracy during the counting of money and reduce losses. A cash counter machine also acts as a counterfeit detector and reduces internal theft by eliminating the need for manual cash handling.
Besides, with the help of a money counter machine, the laborious task of manual cash counting is eliminated, increasing efficiency in your business.
2. Manage Your Expenses
Most businesses’ cash problems can be solved by proper control of expenses.
Expenses can deplete your revenue leading to losses and closure of your business. If you’re struggling to keep your costs down, have a long-term expense management plan.
Other tips that can help keep your business expenses in check include:
- Do away with expenses that aren’t giving you a good return, such as app or publications subscription costs
- Ask for more favorable deals with your suppliers
- Leverage technology to streamline your payables process
- Consider a remote workplace model to cut on the cost of office space
- Consider outsourcing some of the tasks to reduce costs. For instance, hiring a virtual assistant may be cheaper than having a full-time personal secretary
3. Invoice Promptly
Your accounts receivables cannot improve your cash flow until they’re paid.
Being prompt with your invoices will ensure quick payment.
The longer you take to invoice your customers, the more likely they are to delay your payment. Besides, prompt invoicing creates the impression of professionalism among your creditors and may prompt them to pay you before other debtors.
For speedy invoicing, you can automate your billing process such that you don’t have to send invoices manually. A smart billing system will also send automated reminders to your creditors, motivating them to pay you.
An automated billing system is also cheaper as it reduces the time and money you spend following up on payment.
4. Have a Cash Reserve
Sometimes your business might run into financial difficulties that require quick access to cash. A cash reserve for such emergencies can keep your business afloat even amidst business challenges.
To build your cash reserve, you can put any idle cash you might have to work such that it earns some interest. If you don’t have extra money, you can always liquidate obsolete assets and use the money to build cash reserves.
Importance of Cash Management to Business
There are many benefits associated with the effective management of cash flow in a business. Let’s discuss four such benefits.
1. Adequate Cash Balance
The number one benefit of cash management is that you won’t run out of cash. Having enough cash ensures the stability of your business, as you’ll comfortably pay your debtors.
Further, proper money management also helps you determine if your business is profitable. If your business is making losses, you can always seek ways to improve your profitability or try out a new business altogether.
2. Comfortably Pay Your Expenses
Proper cash management enables you to pay your suppliers, employees, and other vendors on time. This does not only give you peace of mind, but it also helps you to have a good relationship with other business stakeholders.
Prompt payment of your expenses and debts also protects your business reputation, enabling you to attract more customers.
3. Make Wise Business Decisions
An accurate cash flow statement will help you know how much money you have, enabling you to make accurate financial decisions. Poor management of cash flow can lead to impulse buying or even high-risk investment decisions.
Besides, if you’re planning on expanding your business, you must manage your cash flow effectively.
Business growth requires lots of cash. For instance, you’ll need to rent out more space, hire more employees, and increase your stock. If you expand too quickly without enough funds, you might find yourself in trouble. But if you manage your money effectively, you’ll know when the time comes to expand your business.
4. Less Stress
Another notable benefit of good cash management is that you’ll worry less about your business.
With good cash management, you won’t have to worry about where you’ll get another cash injection to pay your suppliers or debtors. You’ll also worry less about keeping your business afloat.
Besides, cash flow management keeps you from relying on cash from external sources such as bank loans. Such sources of finance, although helpful, can have a high interest which can reduce your business profitability.
In closing, proper cash management is crucial for business success. The good news is that now you’re now aware of how to keep your business cash flow in check, so your enterprise doesn’t have to suffer the consequences of poor cash management.