How to Improve Your Cash Flow Management | North Loop Official Blog
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North Loop
18 Feb 2021

How to Improve Your Cash Flow Management

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Introduction -

For a business to survive, you cannot rely on sales alone. A positive cash flow is essential, and to achieve that, you need cash flow management.

Here we will talk about what cash flow management is, its importance for a thriving business, and how you can achieve effective cash flow management.

What is cash flow management?

Cash flow management is the practice of understanding and shaping your cash flow. It allows you to make informed business decisions. Poor cash flow management is one of the common reasons why many business fail to succeed.

In certain situations like a market downturn or a global pandemic, it is normal to have cash flow that is somewhat out of your control. But if you have productive cash management skills, you can help your business even during such crisis periods.

Let us look at the practices and tips you can implement to improve your cash flow management abilities -
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Understand your cash flow statement -

It is crucial to understand your cash flow on a surface level. You can do that by going through your cash flow statement that provides a surface-level recap of all the incoming and outgoing cash. It gives a quick overview of your bottom line along with important information about the following -

Cash flow from operating activities -

It usually includes asset and liability related cash flow and is similar to your operating expenses.

Cash flow from investing activities -

All your cash flow from investing activities should appear under this heading in your cash flow statement sheet. Some of these include equipment expenses, building costs, software purchases etc.

Cash flow from financing activities -

Any business activity that involves investors is a financial activity and should appear under this heading. Examples include selling stock, issuing stock, selling equity etc.

Run cash flow projections regularly -

A cash flow projection provides an estimate of your potential cash flow in the future. It can help you identify business expenses that can pose trouble in the future. Cash flow projection can also be a useful tool to see where your business could be in the coming years. Ultimately, you do it to get knowledge and foresight, so that you can plan and increase your chances of having a healthy cash balance.

To run a cash flow projection, you have to pick a period which may be a year or a quarter. After that, you have to take your sales from that period, total up the cash and subtract the expenses. That gives an estimate of what your cash flow might be for the same period in the future. While doing so, you should keep in mind, events that can impact your sales and cash flow.

Stay on top of invoicing -

One of the factors that play a massive role in cash flow management is the accounts receivables. That is why you should always ensure that you practice strict payment terms and that your customers pay on time. If you do not do so, you can end up missing out on free cash flow.

An easy way to be on top of your invoicing game is to use an online invoicing service. You can the software services of a digital business banking platform like North Loop to send quick invoices, accept more payment options and generate automatic income statements.

Don’t offer everyone a line of credit -

A low line of credit can hold up your business’s cash flow and yield nothing in return. Therefore, you should be careful when handing out a line of credit. It is also wise to keep clear and strict credit requirements. That ensures your cash flow does not get negatively affected.

Some other alternatives to offering a line of credit are - third-party creditors or loyalty or rewards programs that will cost you nothing and still drive customer loyalty.

Implement accounting software -

Accounting software can automate and streamline the bulk of your finances. It can help you generate cash flow projections, sync with business credit cards, and also allow you to track business expenses.

If you choose the right accounting software, you can also sync your point of sale system and check your net income or quickly create invoices. We, at North Loop, offer all of these services at low costs and with additional benefits.

You can use our accounting software to ensure that your numbers are always accurate. It will also help ensure that your projections and cash flow management are correct and useful for future planning.

Reduce spending -

You might have heard of this one before, but reducing your spending is always worth it in the long run. You must also audit your utilities regularly to identify areas where you can reduce spending.

Some other ways by which you cut down on your expenses is to check all your upcoming capital expenditures to see if they are necessary or not. These include anything from equipment purchases to buying a building etc. And if you are in a cash slump, it is always best to hold off large expenses at that moment.

Conclusion -

Cash flow problems hurt your profit margins and also sabotage any business plans that you might have. Therefore, you should try to start managing your cash flow effectively and maximise your working capital. It can help you in investing more in your company.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.