BY AMIT MITTAL, Business Accelerator, MADASKY Consulting
Balance sheet and income statements are comrades in the business management story but cash flow is the real star.
Income statements and balance sheets often paint a half-done picture of a company’s financial position. It’s easier to present these figures positively by manipulating them, whereas cash flow statements provide a genuine glimpse into your company’s overall health.
Thus, a business owner must understand and implement a positive and healthy cash flow within his business organization. Cash flow is the sum of money that is flowing in and out of a business as deposits and withdrawals, respectively. It is very different from the profit earned by the business enterprise. Earning profits does not necessarily mean that the business is thriving. Profit is secondary to cash flow matters.
For small businesses, cash flow management will give them a competitive edge over their environment and will dominate the markets. The sooner you start practicing cash flow management techniques the better it is for your business.
Making more money will not solve your problems if cash flow management is your problem. To enhance the health of your business we recommend our cash flow tips to check the health of your business cash flow management!
Follow these 6 STEPS TO IMPROVE THE CASH FLOW KNOWN AS CARDIO
The 6 steps to improve the Cash Flow within a business Organization is in short known as CARDIO.
“C” for The Cost of Goods Sold (COGS)
COGS refers to the direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labour directly used to create good, which directly impacts a business’s operating activities. As COGS goes down inventory increases in the business which can help you increase your sales. Inspect and review your COGS regularly.
“A” for the Assets
Cash flow from assets is the aggregate total of all cash flows related to the assets of a business. This information is used to determine the net amount of cash being spun off by or used in the operations of a business. Thus portray an important role in your business. A quick way to check the health of your business is by using two useful formulas:
- Working Capital (current assets – current liabilities), and
- Days Account receivables outstanding (average/ARnet revenue x 100)
“R” for the Revenue
Increasing revenue is a long-standing goal of every business but it is not an easy task. Most of the inflow of cash in a business arises from revenue generated from sales. Find ways to add additional products and services for your customer base, plan and strategize the best way for your business to multiply your revenue and at the same time reduce your costs for generating that additional revenue.
“D” for the Debt
A popular saying that many businessmen follow is “Money often costs too much.” Debt may bring more money into the business but bringing that money may cost more to your business than you anticipate. One should always analyze the cost of debt before taking debt upon your business and search for better alternative options if possible. To improve the cash flow start closing the smaller debt first before moving to bigger ones.
“I” for the Investments
Cash flows from investing activities indicate the future growth in revenues of the business. A negative amount in investing activities suggests that the business is investing in the capital assets and is paving a way for its future earnings to grow more. You need to always keep a check on the value you are getting from your investments.
“O” for the Overheads
Assess your overheads, analyze where your business is shelling out money, save your costs by restructuring, and negotiating your overhead expenses such as rent paid and other operating expenses. This is where you can probably save most of your money. Control wastage in your bills and wisely spent every penny on your business so that you can build more and expend less.
These steps and our cash flow management tips will help you control your cash flow and will aid you in creating better cash flow projections for your business which will ultimately enhance your skills of decision making and at the same time expand your business to its full potential. we provide the best cash flow management techniques for your business. Blooming businesses all over the world are triumphant because of their unbeatable strength in managing cash flow. At the end of the day, a healthy business needs a healthy heart!
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