Overview

Understand the cash flow.

Track the cash flow.

  • Cash flow planner.

  • 5 key steps to plan cash flow ahead.

Improve the cash flow

  • Speed the receivables collection.

  • 4 tips to collect money faster

We are here to help.

Take Control Of Company's Cash Flow

A Financial Management Guide For Small Business.

Discover proven ways to better manage your cash flow and gain more peace of mind knowing you can take on any challenge or opportunity. Learn how to build a healthy, durable business with smart cash flow management principles.

You'll discover:

  • What is the cash flow?

  • 3 key elements of your cash flow.

  • How to measure your cash conversion cycle?

  • How to use a cash flow planner.

  • Techniques to effectively collect outstanding bills.

Overview

Understand your cash flow.

Discover the main elements that make up your cash flow and key indicators you need to keep an eye on.

Track your cash flow.

Find out how to build an early warning system that will alert you to potential cash flow problems before they occur.

Must Have Sale

Financial Guides - Exclusively for  Entrepreneurs to take good control of the business. 

| Guides (Cash Flows)

Improve your cash flow.

Learn easy techniques to get paid faster and ensure you have enough cash on hand to keep your business running.

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Understand your company's cash flow.

What is cash flow.

Cash is an essential resource that allows you to perform activities and make transactions that keep your business going.

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The lifeblood of the business.

There are times when you have lots of cash, for example, after you receive money from a big sale. There are other times when you do not have a lot, for example, after a big purchase.

Even a profitable, fast-growing company can face a serious cash flow crunch while waiting for money to come in. In fact, it’s surprisingly common for profitable companies to go out of business because they ran out of cash. That’s because cash flow is different from revenue and profit.

Revenues.

Revenue is recorded when you invoice your customer for your products or services. But earning high revenues does not mean you have enough cash to pay the money you owe your suppliers because you are still waiting for your customers to pay their invoices.

Profit.

Profit is what you have left after you have subtracted all of your expenses from the revenue you have recorded. If your business isn’t consistently profitable, better cash flow management—while helpful—will be no better than a Band- Aid on a potentially fatal wound.

Cash flow.

Cash flow refers to the money you collect and use to purchase inventory and pay suppliers. It represents the amount of money that actually comes into and moves out of the business within a specific period of time.

 

Understand your company's cash flow.

How much cash is going in and out of my business?

Your cash flow is made up of the cash coming into and leaving your company over a given period. It measures how much cash your company takes in versus how much it spends.

Cash inflow

Any cash coming into your company is a cash inflow. 

If your customer has purchased your product or service on credit, it is a cash inflow, but this will come in at a later date.

Cash outflow

Any cash leaving your company is a cash outflow.

 

If you buy items on credit, it is a cash outflow, but this at a later date.

3 key elements of your cash flow.

Account receivables (cash inflow).

The money customers owe your company for goods or services they have received but have not yet paid for.

Accounts payable (cash outflow).

The money a company owes its suppliers for goods and services that have been provided but not yet paid for.

Inventory.

The raw materials and finished goods that are purchased from suppliers and then sold to customers to generate revenue. When you buy inventory on credit, it creates accounts payable. When you sell it on credit, it creates accounts receivable.

 
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Understand your company's cash flow.

Cash Conversion Cycle (CCC):

An essential tool to improve the company's cash flow.

CCC = DIO + DSO - DPO

(Inventory days + Receivables days - Payable days)

What does a positive cash conversion cycle mean? 

It means SLOW cash flow

For example, 60 days (Inventory) + 60 days (receivables) - 30 days (payable) = +90 days  

A positive number means that your daily operations are tying up cash. You may need to get extra financing to support the business and be able to pay your suppliers on time

The cash conversion cycle measures how fast your company can convert its cash on hand into inventory, and then convert inventory back into cash. Figuring out how long this cycle takes allows you to understand how many days your company’s cash will be tied up, making it unavailable for use in the business.

The shorter your cash conversion cycle is, the better, because shorter cycles mean cash is moving faster through your business. The faster you sell your inventory, the lower your average days inventory is, so make sure you don’t over-order or let it collect dust from holding it too long!

The quicker you collect your accounts receivable, the lower your average days receivable and the sooner you have access to this cash to use in your business. The longer your average days payable, the more your suppliers are helping you finance your business, which is helpful, but don’t push them too hard!

What does a Negative cash conversion cycle mean? 

It means FAST cash flow.

For example, 20 days (inventory) + 25 days (receivables) - 90 days (payables) = -45 days.

A negative number means your day-to-day operations are moving cash quickly through the business and you will not have any problem paying supplier invoices. The greater the negative number, the easier it is to pay suppliers and meet your financial obligations.

 

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Track your cash flow.

Use A Cash Flow Planner To Measure Your  Available Cash Flow.

A cash flow planner — a simple spreadsheet that shows all the expected money inflows and outflows for your business.

 

This tool can be used to forecast and estimate changes to cash flow. Your ability to track your cash flow depends on your ability to monitor expenses, manage receivables and payables, and plan your activities.

1st part, Beginning cash balance

How much cash is in your business at the beginning of a given period. This number is the same as the closing balance from the previous period.

2nd part, Cash inflows.

Cash that flows into your business from general business activities, as well as from grants and sponsorships.

3rd part, Cash outflows.

Cash that flows out of your business during usual, predicted and unexpected operational activities.

Cash Flow Planner.

It displays cash available to you at the end of the current period.

4th part, Ended available cash balance.

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Track your cash flow.

Plan your cash flow ahead before the new financial year.

At the start of a new year, you should take stock of your business strategy and identify your expenses.

Answering these questions is a critical part of your company’s annual financial planning.

 

Once you have a clearer view of your situation, create a cash flow budget to see if you have enough cash available to implement your strategy. If you don’t, then you need to find ways to improve your cash flow.

Do I need to expand?

How will my plan affect my cash flow?

How much do I need financing?

Do I need to hire more employees?

Do I need any other new resources?

Do I need to buy more equipment?

Improve your cash flow.

Effective ways to collect your bills fast.

Send out the e-invoices quickly. 

Make sure you have sent the invoice to the right person in-charge for payment. Send the e-invoice quickly after the sale or service is rendered.

Set up an automated reminder system. 

Use the right accounting software enable automation to send the SMS, reminder emails, or a phone call to the payers to avoid late payment.

Talk to customers for early payments. 

Speak to the customer for an early payment to give good reasons why it is important to be the good paymaster to reward them for early payment. 

Offering more payment gateways. 

Offering to the customers more channels like Paynow, Giro, FAST, corporate credit card schemes for instant receipt of payments from the customers. 

Offering incentives for early payments. 

Give an incentive like offering a small discount or a  token of cash rebate to loyal customers who are arranging the payments via bank transfer. Late paymaster is subject of late charge and the admin fee if the payment is habitually delayed.

Get Paid Faster!

Your business can get into a situation where your sales have grown, but your bank account balance hasn’t. While there can be many reasons for this, the way you collect your accounts receivables is especially important.

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