Solving Cash Flow Problems

[Suraya Yasmen]

Solving Cash Flow Problems

As a business owner, you need to perform a cash flow analysis on a regular basis and use cash flow forecasting so you can take the steps necessary to head off cash flow problems. Many software accounting programs have built-in reporting features that make cash flow analysis easy.This is the first step in cash flow management.

The second step of cash flow management is to develop and use strategies that will maintain an adequate cash flow for your business. One of the most useful strategies for small businesses is to shorten your cash flow conversion period so that your business can bring in money faster.

If your business is expanding, you may need one or more injections of cash during the growth phase. This can take the form of a business loan from a financialinstitution known as debt financing, or equity financing from investors.

Debt financing is common for assets such as equipment, buildings, land, or machinery where the assets to be purchased are used as security or collateral for the loan. The main advantage to debt financing over equity financing is the business owner(s) do not have to give up partial ownership of the business and so retain full control.

For short-term cash flow shortages, many small business owners make use of credit cards or lines of credit.

Equity financing involves raising money from angel investors or venture capitalists. Equity financing is much less risky in that money invested do not have to be repaid if the business does not succeed; however, in exchange for financing the investor(s) become part owners and as such take a share of the profits and have a say in how the business is run.

Whatever form of financing is required it is vital to have an updated business plan in place to present to financial institutions or investors. The business plan should demonstrate the need (and effect) of financing for the future of the business.


Source: Smell Business.com