Categories: Business Running Costs 114

Cash Flow And Its Importance. It Is Prudent To Reduce Expenditure In Initial Stages Of Business Development.

There are a number of factors that are essential for any small business, but none is as important as cash flow. What is cash flow and why is it so important, particularly to a small business? For starters, it is better to refer to cash flow as money that a small business needs to remain in operation. The survival of a small business is dependent upon finances necessary to pay workers, to pay for raw materials and to pay day to day expenses. It is cash flow that makes it possible to pay all these expenses.

Cash Flow And Its Importance. It Is Prudent To Reduce Expenditure In Initial Stages Of Business Development.

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The phrase cash flow is self explanatory as it means cash that flows in a business. No business activity from the purchase of materials to actual production of the final product is possible if there is no cash flow or if it stops abruptly. So no cash flow means that you will not have a business to run anymore. It is thus necessary to use the revenue wisely and set aside part of the amount for future expenses. Do not utilize the entire amount for purchases of raw material or distributing among the employees in the form of bonuses, as the next payment may not come for several days.

It is this small amount you have kept aside that will be required to fulfill the needs of the business. Do not leave something aside for fun or personal expenses. Even legitimate expenses of the business may have to wait so as to maintain the cash flow. Never underestimate the expenses that are incurred daily or incurred due to an unforeseen emergency. If you think that the payment of another invoice is to come in the next 2 days and spend whatever you have leaving nothing to meet the daily expenses, you may happen to regret your decision, especially if a customer delays payment, thus making the business come to a standstill.

It is thus vital for any small business to keep track of the cash flow and plan expenditure accordingly. It is prudent to learn to reduce expenditure in the initial stages of business development and think of any improvement or expansion only in later stages of the business development. All this can wait until the business has become secure with cash flow having become stronger and greater. Of course you need the inventory, but it is no use piling up inventory when the payment is coming in portions. Secondly, do not buy things that your business doesn’t really need. Make expenditure only if it is necessary for the survival of the business.

Now that you know how important cash flow is to your business, you have to ensure that it doesn’t dry up abruptly. Things that cause immense problems in this regard are erratic and delayed payments made by your customers. Make it a point to talk about payment terms before finalizing a deal and if possible, include a term that asks for an advance payment. If the customer is genuine, he will not hesitate to pay a small percentage of the full amount in advance. Besides, advance payment also ensures timely payment on the part of the customer as he is aware that he has already paid some part of the cost and will get a new order on time only if he makes the payment on time.

You can encourage timely payments by offering a small discount on the bill amount. There is also a policy of charging interest on late payments that forces customers to make payments on time. This is useful as nobody wants to pay interest without a valid reason.

With every payment that you receive, set aside a major chunk for future expenses. This will go on increasing the cash flow in the business so that you can manage for a few days even when there are delayed payments.

Cash flow is like your monthly salary that you have to make prudent use of. Any wasteful expenditure and you are strapped till the next payday. Thus be frugal as much as you can by setting aside some money from every payment to keep for unforeseen circumstances that may arise anytime. If you remain prepared for the worst and do not let cash flow dry up, you can ensure that your business will survive even during hard times.

Cash Flow And Its Importance. It Is Prudent To Reduce Expenditure In Initial Stages Of Business Development.

Business Running Costs Template | Business Running At A Loss | Business Running Costs | Business Running Errands For Elderly | Business Running Out Of Cash | Business Running Costs Examples | Business Running Costs Calculator | Business Running Cost Spreadsheet

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