Cashflow is King For The Small Business

A company needs cash to stay in business. A company needs cash to grow. A company needs cash to compete. A company can look good on paper, and yet not have enough cash to make it through the next month. Hence, the importance of balancing cash flow.

Remember, cash flow is the money your company has available so it can pay salaries, rent, expenses, payables and equipment. When you create a new invoice for a product or a service, it shows up in the books as an asset. However, the money isn't available yet. You can't pay for anything until the customer pays the accounts receivable.

These activities affect cash flow:

• Customers slow to pay invoice.
• Not enough or slow sales.
• Standard expenses, such as payroll, rent and phone service.
• Unexpected expenses, such as building repairs and replacing broken expensive equipment.
• Charging too much or too little for products and services.
• Failure to consider financing. 

Simple example on how timing affects cash flow: a customer that pays you in 45 days affects your ability to pay your credit card bill that's due every 30 days. Since the customer is over two weeks late, you may be stuck paying a fee for missing the payment due date.

You can do many things to manage your cash flow, such as changing your the bill cycle for your credit card payment so you can pay at a different time of the month and consult with your bookeeping team.

The following five basic laws set the tone for better cash flow management.

cashflow