Cashflow management is essential for the survival of any business. Whether you an owner of a small business or the financially responsible party for a larger company you need to efficiently manage your cash through effective cashflow management.
But what does cashflow management actually means? And why it's important for business to efficiently manage their cashflow? How can you monitor the cashflow? Answers to these questions are explained in this article.
What is Cashflow Management?
Cashflow management is the process of monitoring and optimizing the cashflow position of the company. It involves estimating the cash inflow and outflow during a period, and evaluating whether a surplus or shortfall in cash will occur.
If the cash inflow is estimated to be more than the outflow at any period, a company will likely experience a cash surplus. On the other hand, if the cash inflow is estimated to be less than cash outflow, a company will probably experience a cash shortfall.
Why Cashflow Management is Important?
Effective cashflow management provides value to businesses in many ways. Here are four critical reasons why effective management of cashflow is important regardless of company size.
1. Maintain Solvency
Cashflow management is important for all companies, particularly small businesses, to maintain solvency. Lack of cash is the main reason most startups fail. Having adequate cash in the bank account is important to meet operational expenses and ensure continuing of the business.
Without cash, your business can't operate for long. That's why it's essential to manage your company's cashflow effectively.
2. Critical for Service Businesses
Cashflow management is important for service oriented businesses as well as companies selling products. In order to stay competitive, the companies need to provide services at competitive prices.
Cashflow management is critical. All firms need to be especially diligent in managing accounts receivable to improve cash flow position.
3. Important for Seasonal Businesses
Effective cashflow management is also important for seasonal businesses like travel agencies, lawn care companies, outdoor adventure firms, and holiday retailers. While managing cash flow for seasonable businesses can be challenging, it can be done with the right technique.
4. Reduce Operational Costs and Improve Profitability
Lastly, effective management of cashflow can help boost profitability. It allows you to improve operational costs by relying less on costly internal finances. You can also outsource non-core activities thereby making the internal operations more cost efficient. The result will be a positive effect on the company's bottom line.
How Can You Monitor Your Company's Cashflow?
Cashflow position can easily be analyzed if you use an accounting software such as Xero or QuickBooks. The software can generate a cashflow report showing cash inflow and outflow during a particular period. The software can also run a cash flow forecast report by analyzing your receivables, payables, and bank accounts.
To sum up, cash is the most precious resource for any company. You need to diligently manage the cash in order to cut costs and improve profitability.
Credit Management Group can help companies improve their cashflow position through accelerating payment through proper accounts receivable management at a cost that cannot be duplicated internally. We employ a proven, diplomatic four-phase process to encourage customers to resolve their outstanding obligations with our clients without ever jeopardizing client retention.
To find out more information on how we can help to accelerate customer payments through efficient management of accounts receivable, contact us by dialing 215-845-5040 today.