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How to Create a More Positive Cash Flow
• Cash Flows from Operating Activities: This is the cash flow that is generated which is the direct result of the sales of your product/services.
• Cash Flows from Investing Activities: This is the cash flow that is generated from non-operating activities, such as, investments in plant and equipment or other fixed assets.
• Cash Flows from Financing Activities: This is the cash flow that is generated from external sources--- lenders and investors.These three types of cash flow activities are interrelated. They depend on, and affect each other. The cash flow forecast should take this into account, and provide a complete picture of where cash will come from and how it will be used for the period being forecasted. The relationships between the different cash flow activities may depend on the nature of your business, the stage of development of your business, as well as, general economic conditions, or conditions within the market or industry in which your business operates.
1. Stretch out your payment terms on purchases for inventory. In most industries, payment terms are largely determined by tradition and vary from industry to industry.
2. Shorten the collection period. The faster your company can collect money for products and/or services sold, the smaller its cash flow gap will be.
3. Increase inventory turnover. The faster your company moves inventory, the less cash it needs. The key to managing inventory successfully is to continuously monitor your daily sales activity to your inventory on-hand.Profit growth does not necessarily mean more cash on hand. Profit (or net income) is the difference between your company's total revenue and its total expenses. It measures how efficiently your business is operating. Cash flow measures your company's liquidity (the ability to pay bills and other financial obligations on time). You cannot spend profit; you can only spend cash to pay suppliers, employees, the government, and lenders.
1. Increase sales by attracting new customers. Your business cannot sustain itself without the addition of new customers. New customer acquisition is a process that combines market data with direct marketing tools to identify and reach high-potential prospects and convert those prospects into customers.
2. Increase sales by selling additional product/services to existing customers. It is far less expensive to generate additional business from your existing customer base than it is to generate new business from new customers. A regular review of your customers' buying history and frequency of purchases can reveal some interesting facts about your customers' buying habits.
3. Generate more cash from each dollar of sales. More cash is generated because of increased profit margins made possible by increasing selling prices and reducing costs of goods sold.
4. Reduce overhead. Overhead costs generally include facilities, equipment, administrative and management personnel. The key is to produce a larger volume of business at a lower cost.Ideally, during your business cycle, money flowing into your business should be greater than money flowing out of it. The buildup of a surplus cash balance is important because it enables you to plug cash flow gaps when necessary, to pursue expansion initiatives, and to reassure lenders and investors that your business is in good financial health.
Terry H. Hill is the founder and managing partner of Legacy Associates, Inc, a business consulting and advisory services firm. A veteran chief executive, Terry works directly with business owners of privately held companies on the issues and challenges that they face in each stage of their business life cycle. To find out how he can help you take your business to the next level, visit his site at http://www.legacyai.com