Things are on the up and up for your business. Every month, you’re increasing sales or expanding your customer base. But, even if your company is doing well on paper, it might be struggling to pay its bills or fulfill other financial commitments in reality.
Why would your business struggle to make ends meet, even when you’re in the black and your revenues are going up? It has to do with cash flow. Money on paper is one thing and is definitely a positive for your company. But cash in hand, in the form of payments from customers and clients, is even better. You might have plenty of sales, but if people aren’t paying on time or immediately, you might find yourself facing uneven cash flow.
If you’re concerned about your company’s cash flow, a virtual CFO can work with you to help you put together a strategy to level things out.
What is Cash Flow?
Cash flow is the amount of money, usually either cash or cash equivalents, that flows into your business as well as out from your business. Cash flow in can be in the form of payments from customers for your company’s products or services. Cash flow out can be in the form of payments your company needs to make, such as rent payments, utility bill payments, and debt repayment. Many companies track their cash flow on a monthly basis, looking at how much cash flows into the company during a month in comparison to how much cash leaves the company.
Ideally, your company will have a positive cash flow. That means that the money coming into your business over the course of a month is sufficient or more than sufficient for covering your expenses that month.
Why Is Your Company’s Cash Flow Uneven?
Although the ideal is to have more money flowing into the company than leaving it each month, that’s not always the reality for many businesses. Companies can have uneven cash flow for a few reasons. One is that the product or service you offer might be in demand seasonally. You might see an uptick in sales during certain months and a drop in sales during others. During your busy months, you’re likely to have positive cash flow, more money in than out. But when things are slow, you might struggle to come up with enough cash during the month to cover your bills and expenses.
Uneven cash flow isn’t only a concern when you have less incoming cash than expenses. In the months when you have more cash than usual, you might not be sure what to do with it or how best to invest it for your company.
How to Balance Out Your Cash Flow
Usually, the advice on balancing and improving your cash flow focuses on encouraging your clients and customers to pay on time or to pay for their products and services more quickly. Instead of letting people pay within 60 or 90 days, you can require payments within 30 days. You might prefer to require immediate payment so that people pay either before they get your product or receive your service or at the time of receipt.
Another way to balance out your cash flow is to closely examine your expenses. You might have costs that you can eliminate or reduce, such as expensive rent or payments for a service your company no longer needs or uses.
How a Virtual CFO Can Help You Improve Your Cash Flow
If you are stumped about how to balance uneven cash flow or are looking for more long-term solutions to your cash flow concerns, a virtual CFO can help. The team at New Direction Capital can evaluate your company’s finances and recommend a strategy that will help you more reliably bring in more money each month or reduce your overall expenses. We can also work with you to help you determine what to do with positive cash flow in the months when your sales are up.
Your goal is to grow your company and help it thrive and succeed. Part of doing that involves finding ways to balance your cash flow. For more cash flow guidance, hire your virtual CFO today.
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