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Cashflow

Cash flow problems can be a huge factor that can explain why new small business fail, which is why establishing strong cash flow management is significant to successfully running a business. So, what is cash flow? It is the net amount of money that moves into and out of your business- generally on a monthly basis. Cash flowing into your business is typically generated from the sales made, business financing you’ve obtained, whereas Cash flowing out of your business is money you’re spending to run your business and typically includes money spent on inventory, supplies, and rent, loan repayments etc.

Your main goal at the end of the month should be to have positive cashflow, which happens when you have more money at the end of the month than when you started that month. It will be easier to pay your bills, make long-term investments, and deal with unexpected setbacks that might require you to spend cash. Positive cashflow could happen if the total cash made from sales is greater than the total amount of money you’ve spent paying bills. However, if you have large bills to pay despite the high monthly sales achieved, then the opposite could also happen resulting in negative cashflow. Therefore, it is important to monitor your monthly cashflow. It helps to:

  • Understand business spending habits
  • Compare inventory purchases to sales
  • Plan big equipment purchases
  • Anticipate seasonal fluctuations

Cash flow management can help you identify how much extra cash you should have as a buffer for your business. Consider the following tactics:

  • Apply for business financing to help you manage sudden costs and seasonal fluctuations
  • Set aside funds to cover at least two months’ worth of operating expenses
  • Set aside emergency funds to cover unexpected repairs

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