7 benefits of good cash flow
What is cash flow?
Before we jump into the various benefits and opportunities good cash flow can bring your business, let’s be clear on what cash flow exactly is.
In simple terms, cashflow is the movement of money in and out of your business.
The ‘flow’ is cash coming in or ‘inflow’ which is things like customer payments for goods or services. Then cash going out which is called ‘outflow’ such as operational expenses and supplier payments.
So, whenever you have cash coming in and out of your business, this is cash flow.
Why is cashflow important?
There is no way around it, cash flow is vitally important to your business’s ability to survive and succeed! Cash flow is the lifeblood of your business, without it you cannot pay your day to day expenses such as salaries and overheads or buy the supplies you need to run without disruption.
In addition to this, having good cash flow is looked on favourably by lenders and suppliers meaning you can negotiate better rates and discounts.
As you can see cash flow is important to your business’s financial health right now, its future sustainability and its capability to grow and lend.
What are the benefits of good cash flow?
So now we know what cash flow is and its importance to your business let’s take a look at 7 benefits that good cash flow can bring.
You will always have cash!
It sounds simple but this is the greatest benefit of good cash flow. By correctly managing your cash flow you can confidently predict what’s coming in and what’s going out. This helps to ensure that you will always make informed decisions and keep your income higher than your outgoings – giving you confidence that the cash is always there.
Cover day to day operations
Having good cash flow means you don’t need to worry about covering day to day short term expenses. You can pay your staff salaries, suppliers and other overheads meaning you can run your business confidently without disruption.
Increased revenue
By having good cash flow you can increase your revenue. The extra cash that’s coming in can be invested into various areas across your business to bring further profits. Extra staff, new facilities, and marketing can all be invested into to bring more revenue and increase the overall value of your business.
Better credit score and access to finance
Good cash flow positively impacts your credit score which is great news for potential lenders. A good credit score shows you are on top of managing your finances which gives lenders the confidence that you will pay them back. It will also open up the opportunity for better terms and interest rates on borrowing.
Business growth
It’s natural for you to want to grow your business, it’s an exciting prospect for any business owner. But, as you know this takes cash and usually a lot of it. By understanding your cash flow you can correctly forecast. This will help you to understand how to match your income and profit to your growth plans ensuring you don’t overspend or choose to expand at the wrong time. With good cash flow, you can see your business grow and thrive. You can plan with confidence knowing you have the cash there to fund it.
Strong business relationships
Cash flow issues can result in you not having the cash available to pay your suppliers on time. This can create tensions in the buyer-supplier relationship and can even damage your wider business reputation. Having good cash flow means you will have the cash available to pay your suppliers on time every time.
Confidence and peace of mind
Being confident that your cash flow is healthy can bring great peace of mind. Knowing all your costs are adequately covered and you can meet all your financial obligations will help you rest easy. Never underestimate the value of peace of mind when running a business.
What’s the difference between cash flow and profits?
Both cash flow and profits are important metrics when assessing your business’s financial stability and health, they are however different. As we discussed earlier cash flow is the inflow and outflow of cash for your business. Profit is the amount of money which is left after all your business expenses have been paid.
As you can see there a number of amazing benefits to having good cash flow in your business. From overall financial health to future growth, ensuring you maintain good cash flow you can secure the financial stability of your business now and for years to come.
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