Cash flow plays a vital role in the survival of any business through all the stages of its life cycle. Nowhere is this more important during the buildup phase, where business owners must pay off debt obligations, pay employees, and stretch out the initial funds until the enterprise can get on its feet. Companies that fail to manage cash flow adequately within the first year of operations almost certainly fail to survive the following year.
As the business expands, the revenue accumulated would pay not only for the operational expenses but also serve as a gauge to determine potentials for growth. Frequent interruptions in cash flow can stymie development and may in extreme cases cause a business to grind to a halt.
Cash flow management begins with finding the break-even floor, the point where revenues match expenses. Efforts must be made to break even, which may seem initially counterintuitive for those oriented toward profit, but would actually free business owners to pursue profit once all expenses have been covered. Payment capacity, in turn, should be based on actual revenues on hand rather than short-term profit projections.
Ensuring cash flow may also entail actively reducing and managing expenses. While some expenses can be eliminated from the onset (something lean startup advocates prioritize), others must be selected over others. Paying for everything all at once is a recipe for long-term disaster; whenever possible, businesses should get longer payment terms on loans and credit to reduce their initial monthly cost.
Finally, business owners should make efforts to boost the amount of payments coming in. For sales-based businesses, this involves creative incentives to motivate employees to close more deals. Commission-based business-to-business enterprises should have in place a system to deal with the occasional late payments. Finally, businesses that offer in-store credit should have stricter requirements for any credit applicants.
Having behind it more than 30 years of experience in the revenue collections industry, Brennan and Clark works closely with clients to create programs that enhance their existing collections strategies. Visit this Facebook page for more on the company and its services.
As the business expands, the revenue accumulated would pay not only for the operational expenses but also serve as a gauge to determine potentials for growth. Frequent interruptions in cash flow can stymie development and may in extreme cases cause a business to grind to a halt.
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| Image source: entrepreneur.com |
Ensuring cash flow may also entail actively reducing and managing expenses. While some expenses can be eliminated from the onset (something lean startup advocates prioritize), others must be selected over others. Paying for everything all at once is a recipe for long-term disaster; whenever possible, businesses should get longer payment terms on loans and credit to reduce their initial monthly cost.
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| Image source: arborinvestmentplanner.com |
Having behind it more than 30 years of experience in the revenue collections industry, Brennan and Clark works closely with clients to create programs that enhance their existing collections strategies. Visit this Facebook page for more on the company and its services.
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