Everything You Need to Know About Cash Flow Management

Why is cash flow management important?

We probably don’t need to explain that money makes the entrepreneurial world go ‘round. Without available cash to cover your running costs and overheads, your business is dead in the water. Money flowing in and out is called your cash flow, and it is vitally important that you track and analyse this, in order to make smart financial decisions that make your money work for you.

A cash flow analysis allows you to analyse the liquidity position of the company and gives a snapshot of the amount of cash coming into the business (inflows) and amount flowing out (outflows). Smaller businesses are often very dependent on their monthly inflow in order to cover running costs and overhead, meaning that positive cash flow and proper cash flow management is vital. Let’s dive in.

What are the 3 types of cash flows?

There are three basic sources of revenue that can flow into your business.

Operating cash flow: Simply put, this is money that you receive from selling your goods or services, versus the money that you spend keeping your doors open. A company whose income exceeds its operating expenses is cash flow positive.

Investing cash flow: Cash flow from investing activities refers to funds received from any long-term investments, e.g. buying shares in another company or startup. When those shares are later sold for a profit, this money contributes to your business inflow.

Financing cash flow: Some companies sell ownership shares to investors to raise money for operating expenses. For some startups, financing cash flow will play a more significant role than operating cash flow in the company’s overall cash flow management.

How Can You Increase Cash Flow?

There are a number of short-term and effective strategies that you can implement in order to immediately improve your cash flow. Consider the following:

Negotiate better terms with your supplies, and see if it’s possible to get a bulk discount.

Re-examine your costing and manufacturing process. Make sure that your costing is realistic and that your production process is lean.

Incentivise early payment from clients, and make sure to chase those late payments. Your money should be in the bank working for you, not in somebody else’s account.

Cut down on ‘nice-to-haves’ in the office. Do you really need catered lunches?

Rethink your big office space, especially now that remote and hybrid work models are becoming the norm.

Know and understand your yearly cash-flow cycles, and prepare for quieter times. When a shortfall is on the way, you can identify it well in advance and take the necessary steps now to avoid it. Experts like OCFO utilise top tools and approaches to help you forecast money in and money out. In times of excess, cash can be invested smartly.

Call in the financial experts to assist with cash flow projections and effective cash management

Now that you’ve increased the cash flow and kept yourself liquid, it’s just as important to manage that liquidity to your advantage. If you do not have the experience or the in-house expertise on tap, consider getting the experts on call, like OCFO, to advise you on your cash flow management.

Getting in the OCFO Experts to help you manage your cash flow smartly

Growth sucks cash – that’s the number one law of entrepreneurial gravity. As you grow, there will be a bigger and bigger ask of your available resources, while managing everything becomes ever more complex. As an entrepreneur, your job is to focus on growing the company, while a dedicated Outsourced CFO gives you the clarity to make the right calls as you power towards the next milestones. For instance, periods of high profitability and liquidity events (fundraises, exits) can lead to excess money in the bank. Make smart cash allocations and manage your cash flow with ease, led by the insight and experience of a CFO who has handled large sums before.

All business owners will want to avoid cash flow problems. However, due to their size and ability to access financial resources, SMEs are often disproportionately affected by negative cash flow. Careful management of cash flows and attention to liquidity will see your business through any crisis. Contact OCFO, we have the experts and the tools to help you analyse your cash flow situation, and plan for future liquidity. Or visit www.ocfo.com.