Since cash is the most important asset that a business needs, a business cannot function without cash, and without proper cash management, a business can run dry without making money or saving money to operate daily.
This simply means that cash management is the best tool for business success.
A business cannot survive without cash.
Many small businesses filed for bankruptcy because they were unable to control their company's cash flows, which failed many companies in 2021.
If the company's cash flows are not managed, the company's efficiency may decline.
I’ve seen many small businesses that started earlier this year but just can’t keep up until now. Most have run out of *** Working capital ***
Cash flow
The term cash flow means the registration of inflow and outflow of money from a business or an imbalance of cash going in and out of a business at a particular time.
Example: If a retailer receives goods from a supplier, then the consumer receives the goods at the specified price. after the sale of the item, the dealer must pay the supplier for the money flowing in from the sale. The process of paying to the supplier is the outflow that comes out of the business. But if the dealer does not know how to manage this cash flow, the dealer will end up collecting goods without paying and that makes him a debtor.
Therefore, a business needs to manage its cash flow well.
A company's cash flow can be positive or negative.
positive: the positive cash flow indicates that more money is coming in than going out.
negative: more money goes out than comes in, conversely.
Most companies with a positive cash flow know how to influence or bring their customer closer, with a different business strategy, the kind of companies that introduce what their customer always wants.
What mostly cause problem in business cash flow
Low Profit
They are not friends in business, many people jump into the problem of low profits when they are already selling at a price that is lower than the actual amount they should sell their market because they want customers for themselves. If your market is good, people will come back to you and buy from you no matter what price you sell. So do not let your customer loyalty affect your price.
Delayed payment / debt
Having a customer who defers payment poses a risk to the company's cash flows, as do debtors, as debt ages beyond the time when it is so difficult to recover and affects the cash flow for companies that ultimately run many companies in 2021.
Avoid debt in your business and try to chase all debt in time.
Overtrading
Over-trading is a risk for companies, while many do not know about it in 2021 and their business goes bankrupt.
Over-trading can ultimately lead to low working capital. If you trade too much in your business, it is a big risk to your cash flow. Some people trade too much when their business grows too fast. While it's all our dream to have a growing business, it can be a problem for the company's cash flow to take too many orders too quickly.
Too much stock
Having too much stock can pose a high risk to your business's cash flow. Many people think that it is an advantage to have a lot of stock in Warehouse, although that is a good thing, consider whether the number of orders will be lower. If the order level drops and you have excess stock, it can easily affect your company's cash flow.
Solution against poor cash flow
- Avoid selling a lot of credit so as not to go bankrupt, even though there is no way to run a business without selling on credit, but know how to manage your credit and cash flows. You can easily implement a credit control system in your business how customers buy that credit to pay on time.
- Get a loan if your business is growing too fast not to run out of working capital.
- Work appropriately on your Financial growth ie. how much is sent in a month, if your company rents, how much to pay in rent, how much to pay for employees, all this has to be considered.
Assuming all of these fees are $120, then at least in a month we should consider having a customer be able to pay $170, so once the fees were removed, it will be leftover.
Management of business cashflow is very important. Avoid not to run into the same mistake you made in 2021 on your business. Wish you Best in 2022.
Happy Monday and Happy New year in advance
Thanks for Reading
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