From the time a cash flow report is produced until it is reviewed, it is inaccurate. It may be accurate enough for decision making when it is produced but it ages quickly. Each business day (or hour) changes the numbers on the report and consequently your cash flow position. Effective management of cash flow will directly impact the working capital that your business needs to conduct business and to successfully work with unexpected business conditions.
To deal with this dynamic report condition, it is important to understand what impacts your cash flow position. This means that you not only have to know what transactions impact your cash flow but also the timing of those transactions and the business processes from day-to-day, week-to-week and month-to-month.
Balancing Cash Flow
Cash flow is affected by disbursements (cash out) of cash for paychecks, materials, rent, loan payments, taxes, etc. and by receipts (cash in) of cash from customers, interest, customer prepayments, etc. Each of these cash events occurs at different times and in varying amounts, so the balance of inflows (cash in) and outflows (cash out) do not consistently balance each other. In total, for a given period, inflows may exceed outflows. The result is dependent on the timing, if your bank account is low and outflows exceed inflows, you may not have enough cash to cover your cash out requirements.
Consider two examples:
Example 1 - A company with a beginning cash position (blue line) of $50,000 on day 1 faces two payrolls of $30,000 on day 14 and 28, scheduled payments to . . .
As the economy picks up businesses that have been operating off of a tight cash flow position may need a short term loan to enable them to increase inventory, hire a few people and/ or enter new markets. Getting a loan may be problematic for many owners and this article explains some of the stumbling blocks that can be overcome with the proper planning. Lending to small businesses still remains weak so be on top of your game when you apply for a loan.
The value of this article is further enhanced by some of the comments by readers that have offered their own experience.
Key points to consider when applying for a loan.:
- Improve your companies' credit rating..
- Apply to a bank that is likely to approve your application.
- Make sure your companies' finances and credit ratings are solid.
- Cultivate a relationship with a banker who will be sympathetic.
- Find out what is in your business credit report.
- Understand what the application process is..
- Develop a formal business plan that explains how you will spend the money you want to borrow.
- Understand the lending philosophy of the lending bank - loan secured by assets or good cash flow.
- Loan research: Schedule information meetings on loan application with several banks and read up on the same banks on the internet.
- Executive summary.
Read the full article for more information on why you should take the initiative and prepare for the loan application process for your business.
Click here to read the complete article.
Also, read "Win-Win Banking Relationships" for more information on developing a relationship with a bank.
Note: Ask yourself the following questions.
- Do you have a formal business plan for your business?
- Do you have a loan strategy?
- Do you have one or more banks where you have established a relationship?
If you are looking for guidance on developing a business plan contact Mike to learn about the Business Planning services available from Brice Consulting for you and your organization.
Setting a goal for your business can be valuable - but usually isn't. I thought I was the last person on earth to learn how to make goals useful, but in a recent business planning seminar, people started taking notes furiously as I mentioned how goals can add to company profits. In case you, like me, are late to learn this, here’s the lesson.
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