Cash Flow in Business is King

When it comes to business cash flow is king. But why?

Posted by Your Local Expert - January 24, 2019

The majority of businesses fail due to cash flow challenges; such business has had a misinformed stand on the operations of the firm. They concentrate on making profits but do not consider the expenses that will be required to take the business to the profit-making phase. In an ideal situation, the business needs to settle various bills such as the rent fees, salaries and the overhead running cost; all these charges must be met for the firm to go ahead and make a profit. Statistics show that majority of businesses fail due to poor cash flow management as opposed to low profits, the business may have active clients, but the dissatisfaction or withdrawals from your team incapacitate the business's ability to deliver the expected results.

How to project cash flow

Before you start any business, it is imperative that due diligence is done, research on the core requirements of the business; only proceed when you are sure of cash flow availability. The following simple method helps you to project the cash flow;

  1. Determine the cash in hand and cash at bank at your disposal. Make a proper documentation of all the money to be used in the business.
  2. Project the inflows. Make an honest report of your income expectations; the debtors, earning from investment and all other sources. Make sure you only list what you are sure that it will come within a known time frame
  3. Project the outflows. Make a comprehensive list of the payments, rent and all other projected expenses

The records of the projection should be tracked to ensure the forecasts are fulfilled. Sometimes, the business may experience acute funds shortage, to counter this, use a conservative approach where you always tend to underestimate the inflows and overestimate the outflows.

Why is Cash Flow King?

Cash flow has the potential to build or break your business. Some expenses are urgent and must be met for the business operations to continue smoothly; the employees may run away if not paid in time, the landlord requires the rent with no delays, and other overhead charges can't be postponed. Landlords go to the extent of denying business office space when the cash flow is irregular. Cash flow runs the business, what is in the bank is a mere show of trust meted on you by investors.

Final Thought

If you want to succeed in any given business, ensure that your cash flow is regular to prevent grounding the business operations and eventual failure. The major decision of your business should revolve around maintain the cash flow constant, and you will surely have happy employees, clients, and profitable business.