Cashflow: The Key To A Healthy Business

Nov 4, 2015 Blog

If you’re looking at the title of this blog and wondering ‘What is cashflow and why does it matter to my business?’ Then first of all, pat yourself on the back for asking the right questions. Money matters and when you’re running a business your cashflow could mean make-or-break for the future of your company.

What is cash flow?

Cashflow is the balance between the money coming in to your business (cash inflow) and the money going out.

Your cash inflow could be made up of sales, investment in your company, interest on your savings or the receipt of a loan. Your outflow is your overall expenses; wages, stock, rent, loan repayments, advertising, travel…all of the things that are essential for keeping your business going.

Naturally, you want a positive cashflow – so there’s more money coming in than is going out.

RainFin’s marketplace lending platform can help you to build your businesses cash inflow.

Cash rocks!

Ever heard the phrase ‘a bird in the hand is worth two in the bush’? Having liquid cash is vital for keeping any company going. You may be able to weather a negative cashflow for a short period of time, whilst waiting for a big payment, your business could come undone if, in the meantime, you have an unexpected bill or expense come in.

Having a positive cashflow puts your business in a much more stable position. It gives you protection from unexpected expenses, prevents you from defaulting on loans and gives you buying power, so your company can afford to grow or invest when it needs to.

There are ways you can encourage a positive cashflow such as invoicing clients on time and following up on invoices, offering discounts for early payments and – if you’re working on a long-term project – structuring regular payments along the way.

Organising your Cashflow

If you’ve just started running a business, look first of all at your baseline. Think about your start-up costs and be thorough; office space, furniture, deposits, website costs, marketing, legal fees, hardware and the like will require a significant initial investment.

Next, think about your expected cash sources. If your business is already up-and-running you have the advantage of having a sales history – this can be useful for projecting your expected income. If you’re starting a business you may be waiting on loan payments, money from investors and, of course, you should factor in some conservative sales figures.

Finally, consider your monthly expenses: wages, bills, rent, insurance, loan payments and, of course, paying yourself! Once you can see the incoming money against the outgoing it should give you a good idea of your position.

At that point, you can start considering if there are steps you could take to improving your cashflow. Are you spending too much on travel when a phone call or skype conversation could do just as well? Are you over-estimating your sales figures? If you’re in a good financial position and are looking to expand, why not take out a loan?

Keep The Cash Flowing

Once you’ve got a positive cashflow you’ll know that your business is in the best position to keep making money and stay secure for the future. Don’t stop there – the key to maintaining a successful business and preparing yourself for growth in the future is not just maintaining cashflow, but improving it.

Sometimes, to make money you need to expand your business and a RainFin loan can help you do just that see what opportunities your future could hold.

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