Why Cash Flow Is The Lifeblood For All Businesses
16 November 2022
Cash flow can be defined simply as the movement of money in and out of a business. However, when analysed closely, it can be further understood as a complex relationship between income, expenses and credit terms. Positive cash flow enables business growth and is, therefore, the key to success.
How Cash Flow Is Affected By Expenses and Credit Terms
The credit terms set for your account-holding customers dictate the monetary limit on their spending and the due date of their payment. While offering credit generally increases customer expenditure, it delays when payment will be received. Businesses require enough cash coming in from non-account customers to float their operational expenses until accounts are received. If there is insufficient income, or credit limits are set too high or too long, businesses will enter negative cash flow; impeding their ability to improve and grow. This highlights why positive cash flow is not only the lifeblood to maintain operations, but to enable business growth, too.
Using Cash Flow For Growth
Cash flow is essential for facilitating growth as without it, it is nearly impossible to attain the finance required to re-invest in your business. With the ability to secure loans, you can grow your business by:
- Increasing marketing
- Improving equipment, tools or products
- Attaining more property
- Increasing brand awareness through sponsorship
- Improving staff training
- Hiring more staff
- Refining uniform, store appearance and overall branding
- Improving SEO
How To Improve Cash Flow
Fortunately, if you are experiencing poor cash flow there are strategies you can implement to establish a positive cash flow balance:
- Prioritise sending invoices and statements
- Don’t be shy to chase payment
- Adjust account terms
- Incentivise early payment and or penalise late payment
- Minimise expenses
Managing your cash flow is one of the first steps to recovery if you have a tax debt. By taking control of the money going in and out of your business, you will be better able to stick to payment plans and revive your business to a place of profit and growth.
For help with cash flow management and tax debt recovery, contact the expert team at Tax Negotiators here today.
- Boex, A. ‘Why Cash Flow Is More Important Than Profit’, Nebraska Business Development Centre, Online, 2015, https://www.unomaha.edu/nebraska-business-development-center/_files/publications/cash-flow.pdf (Accessed 20 June 2022)
- Odjick, D. ‘How To Invest In Your Business: What You Need To Know Before You Get Started’, Shopify, online, 2020, https://www.shopify.com.au/blog/investing-in-your-business (Accessed 20 June 2022)
John, C. ‘Do Goods Sold On Credit Decrease The Cash Flow?’, Chron, online, [no date], https://smallbusiness.chron.com/goods-sold-credit-decrease-cash-flow-31379.html (Accessed 20 June 2022)