Effective cash flow management is having the right amount of cash, at the right place and right time, every time.
Most people don't understand why they struggle financially, because they don't understand cash flows.
There is a continuous movement of money in and out of business. Most of the times this movement is tracked through your bank statement. For some small expenses this can be tracked through cash expenses that you incur. Here are some easy ways to establish the general cash flow of your business
This will help you to understand what are the timings daily, weekly, fortnightly, or monthly of deposits into your account and similarly the timing of withdrawals from your account. It will also reflect the days on which payments are exceeding receipts and vice versa.
Another advantage is an entrepreneur knows the gap between the time of collection against sales and the time for payment to vendors and employees.
We now need to focus on those days where payments are exceeding receipts and ensure that sufficient cash balance is available with us to make those payments
After doing this consistently for a period of 3 to 4 months you will be in a position to easily estimate the inflows and outflows on a weekly, fortnightly or monthly. It will also create a guideline to either take steps to accelerate your inflows or delay your outflows. The net result of inflows and outflows defines the requirement of cash or funds that an entrepreneur is required to plough in either through his own resources or through a bank working capital loan.
The key to having a good control over your cash flows is to plot them on a table and time them correctly.
Links for all Business Articles: