Cash flow is the first step to avoid a financial crisis. Most business owners believe that their cash flow is defined as the revenue. The statement of cash flows is that which shows the amount of money generated and used by a company.
Cash flows are essential in a business. They can be presented as a record of something that has happened before or about to take place in the future. It ensures that creditors, employees and others can be paid on time. It is cash that keeps your business alive, not the sales.
If you are going through a cash flow crisis then you would surely be looking for a solution. Usually, people contact their friendly bank at such times for temporary financial support in the shape of a loan. But I am telling you that getting such support would push you further into trouble. So here are some tips that should provide some help in pushing you back from the brink of a cash flow crisis.
Always know exactly where you stand or what is your financial situation. This is mostly the main problem; you having no idea what your financial position is and just knowing that there is no hard cash left in the bank account to pay the bills. If you continuously monitor your financial standing then you can well-handle the coming cash flow crises ahead of time. So if you have not started to do so already, and you are going through a crisis; then prepare a list of accounts. The list should include your receivables and payables. Look around you to find out who owes you what. Just try to gather your cash and start paying the bills and invoices one by one.
Now the second step for you to do is to prioritise your list. Look for the bills owed to you and rank them as overdue at the top, and then list the others after them. Stop further deliveries at once. Do whatever you can to get cash. Just call your customers for the payments. Take any possible steps for getting the payments; forget the harsh steps you take in the meanwhile to stay afloat.
Now it is time to take a look at the bills that you have to pay. Here do the opposite, now you need to delay the payments. Look at your list and start paying by the overdue bills. Also rank the overdue bills and first look for the ones which can put your business at risk if not paid at once. These should be your top most payments. The bill which may cause some hardships or threatens your business, if not paid immediately, comes at the second rank. And the third ones are those for which you can call and ask for extensions. You would feel much more in control by prioritising your list.
Your vision would become clearer and you would know which payments to chase and which ones to make. At least make the habit of daily monitoring or knowing your financial position. The very first thing to do is to monitor your bank account strictly. Ticking off, from the list, the people who owe you and already paid you back comes at the second step. Sort the list again and call the person at the number one position whose payment is overdue to you.
Now look into your account and see if there is enough cash to pay off a bill. This would surely give you a breath of fresh air. Call your supplier and tell them that their payment is on its way. Just monitor your financial standing daily now. These are the simplest and easiest steps, which can help you, get out of your crises. You just need to get control of your cash flow to avoid a crisis.