Why It's Important..
As a business owner, what would you say is one of the most important ways to assess the health of any business? For many entrepreneurs, the answer to that question is how much sales the business is generating, or how many new customers it is acquiring. But the truth is, a business can be making a lot of sales and still teeter on the edge of bankruptcy. How is this possible? Two small words:
Cash Flow
Cash flow refers to all the money that is constantly coming in and out of a business. This money flows in from sales or other sources and is expended to meet the business’s operating costs. Being able to manage this money – cash flow management – is one of the most important but often neglected aspects of running a business, says Leenan Homes Team
While profit is important for deciding the viability of a business, cash enables the business to maintain its operations, and maximize opportunities. Without proper cash flow management, the business will suffer, regardless of how great the product or service might be. Many businesses’ struggles can be linked to their failure to master the flow of cash through the enterprise.
Why cash flow is critical to business success?
Because of the central role cash plays in a business, entrepreneurs often say, “Cash is King.” This is a way of saying that cash trumps credit, checks, and non-liquid assets. But why is cash so important?
Avoid debt – with adequate cash, the business does not need to go into debt to sustain its operations. Having fewer debts means the owner can retain control and improve profits.
Maximize production – nothing interrupts a business’ operations like having insufficient funds to pay suppliers, employees, and shareholders.
But when cash is well managed, it is easy for the business to:
Monitor spending – Know where the business is spending money. This information is not on the profit and loss statement.
Develop a credit policy – The need for cash-flow management creates incentives to assess customers’ creditworthiness and also follow up on delayed payments.
Protect valuable relationships – With poor cash management, a business will lose valuable suppliers, due to its inability to pay them on time.
Planning and decision-making – Ready information on how much money is available and how much is being expected helps business owners make better decisions.
Take advantage of opportunities – A business will lose opportunities to expand if it does not have enough money to act at the right time.
Improving cash management for your business:
Cash is central to your business’s operations, growth prospects, business relationships, and overall profitability. But this is not to say that having more cash than you need is actually going to improve your business’s performance.
Too little cash is detrimental to the business, but having too much cash will also cost you. Holding too much cash means that your business will miss out on investment opportunities that could generate more income.
Managing cash flow is about finding a balance between having too much cash at hand, and having too little. Moreover, it means being able to adjust that balance to meet the varying cash needs of the business at different times of the year. What is the best way to build this kind of cash management strategy for a business? You need the help of a professional financial planner.
Why you need a financial planner:
A financial adviser can help you find the best cash management approach for your business because the planner is able to:
Conduct in-depth analysis
A professional knows the kind of questions to ask in order to unearth the real causes of the cash flow management challenges of the enterprise. When trying to solve problems, the quality of our solution depends on how well we understand the problem.
Business owners do not typically occupy their time studying cash flow problems, so they may be unaware of the roots of the issues in their own business. A professional, on the other hand, knows exactly where to look.
Offer an objective view of the problem
One of the difficulties of solving a problem when you are too close to it is that your perspective gets clouded by your experiences, emotions, and assumptions. This is one of the reasons individuals and businesses become fixed in a certain way of thinking.
A professional brings a fresh perspective that enables you to see the problem with new eyes. This injection of objectivity and perspective provides a basis for creating long-term solutions to the problem.
Help you see the big picture
Professionals deal with the cash flow problems of both small and large businesses across various industries. They have the ability to identify the immediate and remote impacts of a business’s financial decisions.
The planner is able to extrapolate your actions today and show their unintended consequences tomorrow. This insight helps improve a business’s decision-making process. It gives you the tools to assess the far-reaching implications of every action. This helps you avoid financial choices that have the potential to harm your business.
Allow our team at Doell Financial the opportunity to service your business needs. We look forward to helping you realize your business's full potential as you pursue your passions and dreams as a proud business owner!
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