fbpx

How to Proactively Drive Business Cash Flow

Having a business opens the doors to many things. Fulfillment, success, and wealth are common desires. And all of these goals tie into cash flow. 

When you have a positive cash flow, it means you’re able to pay your employees, vendors, and bills each month— with cash left over. 

That means your company is turning a profit and able to run without credit or outside investors. That said, a profitable business that avoids common pitfalls creates better funding options (investors, lower-interest loans). This liquidity allows you to develop new products, hire more staff, and grow faster.

Bottom line: Good cash flow maintains the operation of your business, great cash flow opens up opportunities for your business!

Check out these three top areas of cash flow and ways to proactively drive business cash flow for your small to medium business (SMB).

  1. Cash Flow from Operation
  2. Cash Flow from Investment Activities
  3. Cash Flow from Funding/Financing

Cash Flow from Operating

The primary reason for establishing any business is to generate an income. So here is where you want to truly buckle down by identifying any areas where your company could squeeze an extra dollar or two. Your goal is to generate enough capital from operating a business for you to scale and expand operations—allowing you to make even more of a profit.

The more money your business brings in, the better you are suited for the market. 

Here are some business activities that should be generating a positive cash flow:

  • Sale of products and/or services
  • Interest payments, including financing
  • Investing activities

Keep in mind that you are also dealing with payments that negate the positive cash flow. Here you have:

  • Wages and/or salaries for staff and employees
  • Income and sales taxes
  • Cost of inventory, i.e., service or product manufacturing and storage or warehousing

Proper bookkeeping and balanced operating expenses are critical to driving business cash flow. If your costs override your income, the quicker your business gets underwater. Here is also the key place where you can actively gain momentum in positive cash flow.

Find ways to counteract rising expenses with boosts in referral relationships or product/service sales. From here, you will need to work with cash from investing activities and financing to continue seeing positive growth in cash flow.

Ultimately, your goal is to scale inflows, which is cash received, while slowing outflows or money spent.

Cash flow from investing activities

The second way to boost free cash flow, which focuses on profitability, is to look for long-term free cash flow (FCF).

Cash flow from investing activities (CFI) is a common financial cash flow statement in accounting. A company’s CFI includes the cash spent or generated from investments and related processes typically within a financial quarter. Your CFI indexes how well your business will operate in the coming quarter and offers projections for annual growth.

Do you have a CFI established so you can measure growth or loss? A CFI statement includes investing, financing, and working capital areas of cash for your business. The CFI statement is a part of your overall financial statements for banking and investing.

When you want to drive up business cash flow using investing, look at a few areas:

  • Investing in the purchase of physical assets, such as real estate
  • Investing in securities, such as bonds or shares involving financial contracts
  • Sale of assets and/or securities

This is where long-term assets, including capital expenditures (CapEx) and stock options, become a valuable part of your business income. Focus on finding ways to make capital expenditures an indicator of growth rather than reducing your cash flow. Refuse to allow CapEx or stock options to be the star of your cash flow. Take some words of advice from the financing sector.

Cash flow from financing

How does financing help to proactively drive business cash flow? Your business financing activities include:

  • Raising new capital
  • Repaying investors

These two components can lead to a change in the overall capital structure of your business. But, ideally, cash flow from financing offers a way to increase economic benefit for your business as well.

Here are two areas where you maintain control over cash flow from financing. When raising new capital, your company is responsible for issuing company shares to investors. Then, when cash dividends from stock profits are paid out, your company repays investors for their investment in your company.

At the same time, if you are dealing with multiple loans, you will likely experience frequent alterations in the frequency of the investment. Yet, for some companies, loans are part and parcel of operations and must be managed accordingly. 

For this reason cash flow from financing exists — to help businesses involved in the lending to afford the interest and extra banking costs of getting loans.

You can offset the amount of cash inflows and outflows resulting in financing for your business to the funding necessary for managing operations.

Hire a team to boost your business cash flow

To keep motivating your team to proactively drive business cash flow, let us help, creditte’s team of expert financial advisors will lead you on the right path to success. In addition, we offer peace of mind and professionalism for managing your business and its financial goals.

See how we can help your business here.

Start building a better business with better numbers

Related articles

Accounting and business advisory
emails that aren't "spammy"

Sign up here to only receive relevant advice for you and your business.

Liability limited by a scheme approved under Professional Standards Legislation. Member of Chartered Accountants Australia & New Zealand.

 
© creditte Pty Ltd 2024

Marketing for Accountants – MITCO Digital