Cash Flow Business
A cash flow business is one that has plenty of cash available to keep operations running smoothly and to help keep the company operating with maximum potential. Cash in should exceed cash out which can be seen by looking at a company's cash flow statement. When a company becomes publicly owned and has a good cash flow business then it is more likely that investors will want to buy stock. Not having enough money can make a difference between a company staying open or going under. A smart entrepreneur will keep track of money by looking over financial statements and performing an analysis on any variances that are questionable to pinpoint mistakes and other financial problems.
A financial plan will help a company to see possible projections on what might be expected in the future. A cash flow business is one that understands the importance of being careful about spending. To figure projections a business owner will need to estimate sales and disbursements. The difference between the two is carried over from month to month. Entrepreneurs who know how much money they have available will make better informed decisions when there is a need for expansion or other considerations. Too much money going out would trigger that a need for a decrease in expenditures is needed. "Seest thou a man diligent in his business? he shall stand before kings; he shall not stand before mean men" (Proverbs 22:29).
Taking care of customers is an important part of having a successful company. A cash flow business that has plenty of money coming in will not have to worry about putting funds into the company to make more money. Sometimes money has to be spent before money can be made. Taking a client out for dinner might make a difference in making a sale or not making a sale. People like being treated like they are special and doing so could lead them to want to invest or make more purchases. Companies that are concerned about customer service will have a better chance of seeing customer loyalty. In the long run customer loyalty can go a long way towards steady cash flow. Analyzing what customers purchase over and over can help an entrepreneur know what types of products to keep in inventory or add to inventory. Products that do not sell can be advertised as marked down to help sell them.
Extra money could mean expansion. Expansion can lead to more sales because there will be more products to sell. Building inventory is an important part of a cash flow business. Having more products can provide customers with more choices. Having more products can bring repeat business from customers knowing they will be able to find whatever they want. Upgrading equipment can help with expansion as well. When less time is needed to manufacture something then more profit can be realized. If an employee in production has trouble with the equipment then more wages will have to be paid for their time. When equipment is running smoothly then less manpower hours are necessary which in turn means more profits. Some companies choose leasing equipment over purchasing because it allows them to upgrade to new models whenever desired. With all of the changes in technology this could be an asset and could mean less time for production and an increase in cash flow.
Budgeting is not just for individuals. A company can benefit from budgeting as well. An entrepreneur who wants to have a successful company needs to understand that a cash flow business has to watch expenditures. A couple of areas where a company can watch expenditures are with marketing and supplies expense. If a great deal of money is going to marketing then an entrepreneur may need to reevaluate the type of marketing and advertising that is being done. Supplies expense does not normally have a big impact on expenditures unless there is theft going on. An entrepreneur needs to be careful about expenses since too much expense can eat away profits. Budgeting regular monthly expenses can help to free up some money for other things.
A cash flow analysis will help an entrepreneur gage the accounts that impact the money coming in and going out. A cash flow business has components that can have an affect on the bottom line. Some of these include accounts receivable, accounts payable, and inventory. An analysis helps to catch potential problems. More expenses and less sales in one month can be an indicator of a money shortage the following month. An analysis done on separate accounts can show where potential problems may be. An analysis on accounts receivable can show customer's past due accounts or those who are paying late. Looking at an analysis of accounts payable can show where utilities are higher or can pinpoint a problem with a phone bill.
A careful perusal of financial statements is an important task that every entrepreneur should take the time to do. Financial statements show sales, expenses, and profit or loss. Comparing month to month can help to spot problems that need to be investigated or analyzed. All variances that are significant should be checked out. A cash flow business may be able to increase money flow just by finding mistakes on the financial statements. Comparing sales from month to month can show variances that need to be checked out. Accounting errors can turn out to be significant. Posting errors that affect sales can have disastrous effects.
Cash Flow ConsultantA cash flow consultant is a financial resource person who will work with businesses and individuals to find ways for these entities to have more money flowing into the income side of the ledger. These consultants can be certified within their own company, or can be college trained in business management or banking services, or can be both. Hiring a cash flow consultant on the business side of things probably means that one's business is suffering with a monthly income dry spell that often hurts the ability to cover all expenses. Yet it may be a business that is seasonal in nature and the months without much income are about to shut the doors on an otherwise healthy commerce venture. A resource person with an understanding of cash flow issues may be able to make the difference. While vitally important to a company's well-being, a consultant in cash flow issues has a fairly narrow stream of focus.
When a cash flow consultant studies a floundering business, the first places to always investigate are inventory control and how accounts receivable are handled. Inventory control problems might be something so obvious as an air conditioner manufacturing having way too much product on the shelves in October or a bonnet company having way too many bonnets the day after the Easter parade. Money is tied up on the shelves that are needed for outgoing expenses so a real paradigm shift is called for in the sales division. More dynamic advertising in March for both the air conditioner and bonnet manufacturer was called for. Bringing a company out of the era of ledger books and into the wizardry of bar coding might also be one of the best solutions a cash flow consultant might have. But accounts receivable are also a big concern for the consultant.
In the case of the Tight Fit Casket Company, the cash flow consultant knew right away that the firm's policy of a sixty day billing cycle was killing the company's income stream. She suggested that the company begin requiring a thirty day billing cycle and rewarding those customers who paid within ten days with a one and a half percent discount. Additionally, it was advised that the company begin taking check payments by phone, fax and online to help get money flowing more quickly. While all of these suggestions did help somewhat, months later the consultant made a suggestion that made the eighty three year old company president go apoplectic. She suggested to him that the Tight Fit Casket Company raise prices as another way to increase the income stream. Many people have the mistaken opinion that no matter what kind of life they lead, God is ready to hear their prayers. The Bible says, ""For the eyes of the Lord are over the righteous and his ears are open to their prayers; but the face of the Lord is against them that do evil." (I Peter 3:12)
In many businesses, the steps that the cash flow consultant has suggested for the company to take are pretty standard. But after the president calmed down, the consultant talked about factoring. Factoring is the process by which factors, or investors, will pay a company having cash flow problems about eighty percent of the value of each invoice billed. In return, the factor receives a certain commission on the full payment when received. There are a number of issues to be solved with this type of agreement such as who gets stuck with a default, and who takes care of slow pays. Some factors are willing to take all the risk, but of course, the commission is higher.
And then there is the flipside of this solution that the cash flow consultant suggested. It is called a purchase order finance agreement. Because the Tight Fit Casket Company was a fairly new company (I know, the president is old!) the company often had supply and expense bills arriving but the paid invoices were slow in arriving. Cash flow was often more like Jell-O in the freezer for these manufacturers of "The Box." These investors, much like factors, will pay up to eight percent of a company's billable expenses in exchange for a commission on incoming paid invoices. Since this company's profit margins were a little higher than other businesses, this suggestion began to raise the hope of the president that this purchase order agreement might turn out to be quite profitable from a month to month basis. He had been tiring of the daily grind fending off creditors and suppliers.
A genuine cash flow consultant is going to make it her goal to find ways to assist the company that has hired her to find real and workable solutions to income stream issues. A person only interested in getting signed agreements for factoring and purchase order financing will not have the company's best at heart. The advice about lowering the billing cycle, giving incentives to early payers, restructuring the inventory process, and taking check payments over the phone might result only in billable hours for the consultant and not a commission. Yet the true professional will accept that possibility as a job well done for the client. Because just like other professions which have had their share of charlatans, a thorough investigation is in order before hiring anyone professing to be a cash flow expert. One should also be prepared to take criticism, hard truth, and the possibility that business operations have not been correctly configured in the past.