Matt Baker is VP of Strategic Planning at FreshBooks. Matt has a long track record of successfully bridging business and technology. Prior to FreshBooks, Matt was a Management Consultant at McKinsey & Company and a Senior Strategist at Google, Inc. So, what is cash flow in business?

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How To Conquer Cashflow – 24 million Americans – a group larger than the population of Florida – say they want to work for themselves by 2021. For many, the risks associated with such a massive change are the only thing keeping them from making their dream a reality. Matt can shed a light on overcoming these obstacles, as well as provide practical tips to overcome them.


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What is Cash Flow?

Every firm relies on cash, and running out of it is the leading cause of failure for small businesses. Even if you have a lot of sales, if you don’t have enough cash in the bank, your company will be unable to pay its payments and stay in business.

Cash flow is the amount of money that flows into and out of your firm over a given period of time. Businesses bring in money through sales, investment returns, and loans and investments—this is cash flow.

And businesses spend money on supplies and services, as well as utilities, taxes, loan payments, and other bills—that’s cash pouring out. Cash flow is calculated by comparing how much money comes into a firm vs how much flows out during the same time. Cash flow is usually calculated over a period of a month or quarter.

The most important aspect of cash flow management is to maintain track of it at all times. You must know how much money your business is bringing in and how much of that money you have on hand to spend. If you have a good understanding of your firm’s cash flow, you can use these basic strategies to boost cash flow and manage your organization.

Send invoices as soon as possible

Cash flow is important because it distinguishes between invoices that have been sent and invoices that have been paid. If you don’t have $10,000 on hand to meet your expenses, then a $10,000 invoice means nothing. As a result, you should not be afraid to issue invoices.

You could want to go from a monthly billing model to one in which you issue invoices only when a particular amount of work is completed. If your small business is an advertising firm, for example, send your invoice once you complete a certain amount of campaigns, ad spending, or other activities during the month.

Make any necessary adjustments to your inventory

Examine your inventory to find out which things aren’t selling well. These products deplete your cash flow because the money you spend on them doesn’t convert into sales and thus revenue. You can alleviate this cash flow issue by selling these less commonly purchased things at a discount and without purchasing further stock once the present stock is depleted. Similarly, you may always put extra money into stocking up on popular things.

Rather than purchasing your equipment, consider leasing it

Even though buying new equipment and updating outdated equipment is normally less expensive in the long run. It can be costly in the short term not to mention time-consuming. Instead, consider leasing your equipment to reduce your short-term financial load. You won’t have to upgrade or try to sell out-of-date equipment. And equipment leases frequently qualify for tax deductions that reduce your tax liability. As a result, you’ll have less cash leaving your bank in large chunks and a more consistent cash flow.

Take out a loan before you need it

Preventing a cash flow problem is the ideal time to solve it. Now is a good moment to borrow money if your company is doing well or is just getting started. You can prevent the possibility of rejection later on by getting a business line of credit while your numbers are favorable. This will also give you resources to fall back on if you run into any difficulties while launching your firm. Small businesses, particularly those hit by seasonality, can benefit from a business line of credit.

Refinancing for organizations that have already been suffocated by high-interest credit card debt. Consider acquiring a business line of credit if you made multiple purchases on credit cards with interest rates of 20% or more. You might be able to secure a line of credit for as little as 6% or 7% interest.

If you haven’t opened any credit cards and are having trouble securing a loan, get a small company credit card with an interest-free grace period to help with short-term funding. Credit cards may highlight savings opportunities. And many even have creative reporting capabilities that show spending trends to help business owners improve their cash flow.

Work could also be declined, shifted, or postponed

Cash-flow management is as much about timing as it is about anything else. For most businesses, getting a year’s worth of business in one month is impossible. Insufficient business, on the other hand, may result in the establishment’s closure. As a result, controlling the amount of business for consistency can be an effective strategy to control cash flow. This may include declining or deferring work at specific times of the year. This method is unworkable for businesses that are highly seasonal. Retailers, snowplow drivers, and tax accountants will be unable to alter their companies’ seasonality.

Many other businesses and industries, on the other hand, can better prepare for a more steady flow of work and adjust the scheduling of the labor. Consider a win-win situation. For example, you could provide good customers a discount if they postpone their task, order, or service.

Offer Future Revenue

For consumer businesses such as retailers and restaurants, a merchant cash advance is a suitable option. It entails taking out a loan that is automatically repaid using a portion of the business’s credit and debit card transaction volume. This method works well for companies that have a long track record of transactions. Simply ensure that the company’s margins can afford the loan costs. Otherwise, they may be on the verge of financial disaster.

Final Thoughts

Consider which of these techniques makes the most sense for your client’s business. Small enterprises are propelled by their working capital. Your clients will be considerably more positioned to manage their working capital. And, as a result, maintain and grow their operations if they grasp the options accessible to them.