SMALL BUSINESS BLOG
Cash is fuel for a business and lack of it is a primary reason a business will fail! Are you aware of the three components of cash when it comes to evaluating the health of your business?
1. Cash Position - this is the amount of cash currently on hand and available to use, or cash equivalents ie shares or short term deposits that can be converted to cash quickly.
2. Cash Flow - this is the amount that will be generated and subsequently spent through the business operations, basically the amount that flows through the business over a period of time. You are said to have positive cash flow if the total cash inflows (ie cash received from sales) is greater than the total cash outflows (ie cash spent on bills).
3. Liquidity - this is the rate at which the business can generate more cash by selling assets without incurring much cost to do so. Items such as inventory or stock of product on hand can be sold off to generate cash quite quickly, whereas assets such as real estate or equipment could take months or even years to sell.
So how can you impact the cash in your business? Some examples to consider are to increase your revenue, reduce your expenses, delay the rate at which you pay your suppliers (accounts payable) and speed up the collection process for customers that owe you money (accounts receivable).
Most importantly - keep tabs on your cash flow with a forecast that you can update on a weekly/monthly basis so you know how money is flowing in and out of your business at all times.
Sign up the the FUEL newsletter to get immediate access to a handy Cash Flow Forecast template to help you keep tabs on your money!