To use a simple analogy, just as an electrical gadget cannot run without electricity, so also no company can function without ready money in the form of cash.

What is cash flow?

Cash flow may be considered to be the power source of a business, helping it operate and survive. It is its bedrock, lifeline or foundation. Cash flow is the amount of cash that a company gets and spends within a certain time frame. It may appear that the cash is flowing only one way but in reality it is flowing both ways. It flows in through receivables, and flows out through payments to suppliers.

How is cash flow calculated?

Cash flow is calculated by checking how much cash balance you have in the beginning of a certain period, say a month, and what you have at the end of it. The difference between the two is your cash flow. A positive number indicates that your cash flow is robust and you have been making more money than you have been spending. A quick glance at a cash flow statement can tell you which companies, whether an SME or corporate, are running in the red and need a transfusion of money, and which are able to comfortably stand on their own.

What is cash flow made up of?

There are generally three major components in a cash flow statement: The first being the operative part, which covers your daily or immediate operations. The second is the investment component where you arrange money to buy something in the long term, like say new equipment. The last one is known as financing, where for example, stockholders are paid dividends.

It goes without saying that a healthy cash flow is important for any company.

Also Read : 5 Ways In Which A Small Business Loan Helps Take Your Company To The Next Level

Here are 5 ways how you can improve the cash flow of your venture:

  • Prepare your bills diligently:

    There are many entrepreneurs who have no clue on how much cash they are sitting on simply because they do not have a proper billing system, or don’t use it even if they have one. Having this lackadaisical attitude can be detrimental. Prepare your bills as soon as the job is completed instead of delaying this process. Also be sure that you incorporate your tax considerations when preparing the bills such as the goods and services tax (GST), service charges and other duties.

  • Ask for an advance:

    Asking for a partial payment has two main advantages: it enables you to have certain cash reserves in hand and ensures that you are more likely to be paid for the work done. There are many ways you could ask for an advance. You could ask for one half of the money to be paid upfront before the work is completed, the second half after the task is done. You could also ask for one third of the bill amount to be paid before commencing the work, one third while doing the work and the last one third when the assignment is in its final stage.

  • Offer discounts for early bird payments:

    Encourage those who pay you early by giving them incentives, such as offering them discounts. This will serve immensely to increase the reserves in your cash tank or pipeline.

  • Pursue your receivables:

    Another trait of some entrepreneurs is that they know how much they owe to others, but they are in the dark about how much is owed to them. In other words, they have no track of the receivables due. This depletes the cash component in the company’s capital basket. Make sure that you are paid on time and send reminders when there is a delay. You may even penalize your consumers for making late payments.

  • Take a business loan:

    Another way of improving your cash flow is to take a business loan so you can infuse more cash in the system as use it as working capital to run your enterprise. Taking a business loan may not necessarily mean that your cash flow is negative, but could well be a safeguard to keeping your own cash reserves intact. You could even use it for other purposes such as expansion or buying new machinery.

Bajaj Finserv can enhance your venture’s competitiveness and profitability by offering you a crutch in the form of a Business Loan online with an affordable interest and convenient repayment options.

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