How to Improve Cash Flow in a Business (5 Important Factors!)

Perhaps your are wondering "How can I improve the cash flow to my business?". In this video, I wanted to let you be aware that a few small changes to your #business processes can have a massive impact on your #cashflow.

The first cash flow driver, is Accounts Receivable Days. This is the number of days it takes you to get paid on average by all of your clients. As an example, if you have monthly sales of 100 thousand dollars and it is currently taking you 45 days on average to get paid, you could have an extra 50 thousand dollars of cold hard cash in your bank account if you could bring the average days down to 30 days. There are many processes you could implement to achieve this result, but that is another video for another day.

The second cash flow driver, is Accounts Payable. This is the number of days on average it takes you to pay your bills. In this case, the higher the number of days the better. You want to hold on to your cash as long as you can!

The third cash flow driver, is Stock Holding Days. This is the number of days your stock sits on the shelf. Stock sitting on the shelf is cash sitting on the shelf, so you want to reduce the number of days on this one to get the cash back in your account.

The fourth cash flow driver, is Work In Progress Days. This is the number of days it takes between starting a job and Invoicing for the job. Again, the quicker you can Invoice a job, the quicker you see the cash.

The last but most important cash flow driver, is to Business Profitability. I see all the time where a business owner will focus on cash flow as a result of their issues, when in actual fact it is a profitability issue. If your business is not profitable, it is only a matter of time until you have cash flow issues, regardless of how good your first 4 cash flow drivers are.

Business in its basic form is just a numbers game, so make sure you are constantly across your numbers to make sure your business is profitable.

#financialaccounting #bookkeeping #accountsreceivable #cashflowmanagement #accountspayable #stockholding #businessprofitability