How to Manage Cash Flow for Sustainable Business Growth

Generating consistent revenue streams makes a business resilient and sustainable. The support of cash reserves and growing year-on-year profits allows the entrepreneur to take risks and invest in high-growth initiatives. It insulates the business from minor financial upheavals that are a part of the business lifecycle.

Constant growth can be accomplished through effective cash flow management, which is usually the accountant’s prerogative. However, entrepreneurs, too, need to understand financial management to sustain their ventures in the competitive and dynamic marketplace. So, here is how cash flow can be managed for sustainable business growth. It will help you gain insightful knowledge about the efficient utilisation of business capital and minimise the occurrence of deficits.

What Is Cash Flow?

Cash flow is the inflow and outflow of capital to and from the business. Cash comes into the organisation through the sale of its products, return on investments and business loans. Conversely, it goes out in the form of salaries and wages, cost of production, cost of the stock, lease and utilities, etc.

The cash flow of the company can be determined by analysing the cash flow statement prepared by the accountant, which helps to understand the utilisation of capital in a given period. Entrepreneurs who purchase a business for sale in the United Kingdom evaluate the cash flow statements of the past few years to assess the financial health of the entity.

A positive cash flow indicates sustainable business growth because it has sufficient liquid assets to comfortably repay its debts, pay dividends to shareholders and manage expenses besides setting aside some cash for savings. It ensures the business will not be badly affected by a decline in sales due to an economic downturn or natural disaster.

How to Manage Cash Flow for Sustainable Business Growth?

Cash flow management is tracking the flow of capital to identify the cash flow needs of the business. The accountant follows all transactions to monitor the amount received and expenses incurred. Let us understand how they manage it for sustainable growth.

1. Conduct Regular Cash Flow Forecasting

Cash flow forecasting is imperative for growth because it predicts the amount of cash available to the business and expected expenses during a given period. It helps them determine periods of low income and plan for them to avoid a cash crunch.

It makes the entrepreneur make informed investment-based decisions and make payments to suppliers and employees on time. Thus, forecasting helps to stay in control of upcoming financial troubles and nip them in the bud.

2. Build An Emergency Cash Reserve

Saving for the rainy day is a must for businesses because of the uncertainty associated with the economy, politics, customer behaviour and technological advancements. For example, mobile phone cameras have made traditional cameras redundant.

Thus, businesses need to be ready for a sudden reduction in sales that can lead to severe losses. The contingency planning must include a cash reserve that must be built with regular contributions every month or quarter. Entrepreneurs should strictly put this money aside and never touch it until there is a crisis situation.

3. Improve Cash Inflow Through Prompt Invoicing

Entrepreneurs need to proactively send out invoices to customers as soon as the goods are delivered. They must follow up with clients to make the payment before the due date.

Another way to boost cash inflow is to ask customers to pay before the due date at a discounted rate. Also, the invoice must offer online payment links to make the task easier for customers.

4. Reduce Cash Outflow With Effective Management

Another business tip for increasing available funds in the business is to maintain good relations with suppliers to get discounts from them. Also, use the rapport to defer payments until the due date to keep money in the business for a longer period. However, the due date should never be missed to avoid paying late fees or charges that add to the expenses.

5. Maintain Optimum Inventory Levels

Business owners are in the habit of ordering stock in advance and keeping it stored for months. However, it takes away a huge amount from the business account at once, and the receivables come slowly, which affects the cash flow.

Thus, the business owner should order only when required and sell the excess stock. They can keep a few items in the buffer, but there will not be a landslide demand. So be realistic and purchase accordingly.

6. Diversify Your Product Line for Higher Revenue

Cash flow can be improved by acquiring new customers by introducing new products that are in demand. Relying on one product for profits is highly risky. If the demand goes down, it will affect the entire business and can even lead to bankruptcy.

Diversification ensures that the business will continue to generate income even if one of the products does not sell. For example, a skincare brand can diversify into hair and body care to gain a bigger market share.

7. Secure Business Funding From Varied Sources

Every business owner has expansion plans and requires funds to achieve these goals. They can secure financing to get the required funds and maintain a positive cash flow.

The sources include angel investors, venture capitalists, crowdfunding, bank loans, line of credit, UK government funding, etc. However, they must avoid getting into bad debt and ask the accountant to find the most appropriate lender who offers a low-interest rate.

8. Cut Down on Unnecessary Business Expenses

Entrepreneurs who acquire a business for sale in the United Kingdom need to reduce expenses to maintain the growth momentum. They must assess all the outgoings and identify the ones that can be reduced.

For example, during the acquisition, if the buyer feels that the current lease is too high, they can shift to an affordable office space. Similarly, if they need new equipment, they must lease rather than buy them to save capital.

Wrapping Up

Cash flow management is an ongoing process that needs constant monitoring and reviewing of the capital. Entrepreneurs must envisage the cash flow and develop strategies to mitigate costs and boost sales to keep it positive.