Managing your money now has changed a lot from the time of our ancestors. Cash flow is like a fuel that keeps a business running smoothly. Between student loans, pressure to start saving early for retirement and expensive urban housing markets, those first paychecks are in demand and there’s little room for an error. So planning is needed to manage the budget in order to make most of your money, pay debt or start saving and other financial statuses.
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By creating a cash flow budget, it can be ensured that you comfortably pay your entire budget and it enables you to manage your revenues and expenses profitably. It is important to keep your cash flow budget up- to- date and make sure it reflects changes in your operating environment, your plans for your business.
It is also important to jot down the items which put the most impact on the cash flow like price, volume, or overheads. Cost of the goods sold has a significant impact on cash flow. On other hand various competitive pressures may prevent you from increasing the price. It is also affected by investor days and account receivable days. Market competition for several goods ranging from manufacturing products to non industrial products like loan at profitable interest has a great impact on the budget and cash flow. Investors invest on those from where they receive maximum interest and profit. So keeping price that suits the interest of both the investor and buyer is of equal importance.
There are number of different ways on how to manage your receivables. Establishing effective credit policies is an important part of successful cash flow management. Also offering schemes to encourage clients to pay more quickly like giving discounts for early payments, or charging interest on accounts that are past due are some other ways to maintain a cash flow. While interest and late charges may become a source of income for the company or the business, it is important to apply some due diligence. Extremely late payments are more likely to become write offs and will also keep your working capital tied up.
Regularly reviewing your account payable schedule helps to determine how well you are maintaing your cash flow account or keeping up with your credit obligations. A useful practice is to have an “aging schedule”, which shows how much you owe, to whom and whether you are current or past due on any of the bills. It also keeps your account up to date and helps manage profits effectively.
Look for ways to cut back. For example, can the cost of promotional material be reduced without compromising their quality and impact? An independent audit may reveal redundancies and inefficiencies that you can easily address. Cost cutting attracts huge customers as well as investors if it offers best quality at minimum price. On the contrary, it has to be managed very ideally so that it may not become a future crisis in the business.
Best credit facility will depend on your company’s individual circumstances, business plants and existing credit facilities. For example, the term loans are ideal for long term capital purchase, while the lines of credit can be used to meet the short term working capital requirements or take the advantage of unexpected business opportunities.
Putting your company’s surplus cash flow to work is a very profitable thought in a business. Access how much money you need to set aside for emergencies. To do this reviews your company’s history for any patterns or provoking steps or ideas. As well, consider how much potential changes in the economy such as currency or interest rate fluctuations, could affect your revenues and expenses. Any surplus in cash flow can be used in business expansion, to pay off debts or maintain a certain level of working capital.