Protect your business with these cash flow rules

Do you know what the cash balance of your business is? Should. It is not something to be passed over with such indifference. After all, your business’s cash flow is the lifeblood of all operations. It helps eliminate all of that, the constant worry that comes from not knowing what your cash balance is or what you can expect it to be in the near future.

With the right tax balance, you can easily find the type of financially successful business you deserve. Not only will it help you organize how everything will work, but it will significantly increase the likelihood that you’ll never run out of cash. Here are some rules to follow to maintain a cash flow balance:

• Growth consumes your cash reserves – It almost doesn’t seem very fair to a business owner. Here you are growing at a fast pace only to find that all that growth is eating up your cash reserves. As a business, you are paying for products and inventory up front to meet demand, only for customers to pay months later. Unfortunately, most business owners don’t realize this is happening until it’s too late. Be careful that your growth doesn’t cost you too much cash, but instead uses working capital. Remember this good advice: the faster your business grows, the more financing you’ll need.
• Inventory costs a lot – You can’t sell anything if you don’t have anything. In order for you to have a product to sell or supplies for your service, you need to spend money up front. There aren’t many vendors who are willing to give you a product without getting paid within a reasonable amount of time. For every dollar you invest in inventory, that’s a dollar you don’t have in your cash reserves.
• Working capital is a company’s best friend – In case you don’t know, working capital is basically the money left over after you subtract all your current liabilities from your current assets. It is the money in the bank that is used to pay all operating costs and expenses. It is also used to purchase inventory during those times when clients or customers have not paid you.
• Banks have no sense of humor. – Don’t expect sympathy or big laughs from a lender when it comes to money. It is important that you plan ahead for any type of circumstance. If something in the near future of your business cannot be avoided and will require an amount of cash, such as a new opportunity or a problem with paying customers, the sooner you let your lender know there may be a problem, the better. Put together some charts and a realistic plan on how to overcome to avoid potential problems.