Cash Flow Management

Managing cash flow is essential.  Lack of cash is one of the biggest reasons businesses fail.  

Cash flow is simply the amount of cash (and cash equivalents) moving in and out of your business. You need to keep track of cash flow on a weekly and sometimes daily basis to make sure you don’t run out.  You need a cash flow budget.

There are many ways to manage cash flow, such as:

  • Use supplier cash rebates
  • Delay payment to creditors
  • Delay capital expenditure
  • Reduce inventory levels
  • Reduce creditor payment terms
  • Offer discounts to customers for cash on delivery
  • Taking customer deposits
  • Temporary line of credit

These are all short term solutions.  Cash flow may mean something more fundamentally wrong with your business.  Factors that might help profitability and ultimate cash flow include:

  • Increasing prices, eg. product differentation
  • Reducing operating costs, eg. cost efficiencies
  • Reducing expenditure

There are three key types of cash flow that you need to be aware of:

  • Operating cash flow – this is the cash from the day-to-day operations of the business
  • Investing cash flow – this is the investment in fixed assets of the business or acquiring businesses, with the intent of creating larger future cash flows
  • Financing cash flow – this is how the company is financed, such as cash flow from capital raising rounds

Simon Cook, Valuations, Forensic Accounting, Virtual CFO. CA Accredited Business Valuation expert, Chartered Accountant and Certified Fraud ExaminerSimon specialises in Virtual CFO services. Prior to founding Lotus Amity, he was a Corporate Advisory partner with BDO Australia. He has also held senior management positions with Deloitte and Crowe Horwath.  Simon is a Chartered Accountant, CA Accredited Business Valuer and a Certified Fraud Examiner. Prior to becoming an accountant worked in sales and marketing.

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