How Do You Manage Your Cash Flow During Business Expansion?
Business growth and expansion is the dream of every small business owner or start-up entrepreneur, who wants to take his company to the next level. Every large multinational corporation that we see today has initially started out as a small local business, only to grow and expand it over the years. While it is true that a good and continuous cash flow is a good sign of a healthy business, it is important to manage it correctly and never to make a compromise in terms of customer service or product/service quality.
However, business expansion is a very difficult thing to achieve, and statistically speaking, more than half of the newly started businesses are prone to fail within the first 5 years of operation. Why? Because they lack proper management of the cash flow, and their owners do not have the necessary vision to grow the business and push it a mile further. Here you will find out more about how and why is it crucial to correctly manage the cash flow during business growth and expansion.
A Deeper Insight into Cash Flow Management – Things to Consider During Business Expansion
If you have planned to expand your business, no matter if that involves opening a second or a third store in a new location or to diversify your array of products or services in order to reach a wider audience, it is crucial to consider some cash flow management aspects that can make or break your business. As mentioned above, cash flow management is an aspect of paramount importance for the success of every business, and the first step you need to take towards managing it during business expansion is to understand how it works in the first place.
Keep an Eye on Your Cash Flow during Every Stage of the Expansion Process
The second and perhaps most important step is to thoroughly analyze your cash flow during every stage of your business expansion. This does not require any advanced accounting skills or math knowledge, and most of the time the business owners are able to keep track of their cash income on their own – however, if you are a busy owner, then hiring a professional is highly recommended. As a matter of fact, a professional financial analyst or a skilled business accountant can also identify some of the common problem areas that often arise in the cash flow cycle of a business throughout the expansion process, a process that can take anywhere from a few months to a few years.
Use Cash Flow Management Tools in your Best Interest
The third step that you need to take after having identified the cash flow problems that apply to your expanding business is to become familiar with the accounting business tools that you can use in your interest. Some of these tools, such as the renowned Excel worksheet template, can be downloaded and used for free (and this aspect is particularly important for start-up entrepreneurs who are just getting started in the business industry, and who cannot afford investing heavily in business and cash flow management tools). On the other hand, the more complex programs that usually feature a plethora of advanced functions can come with a hefty price tag – nonetheless, they are certainly worth the investment, as they will help you grow your business, address cash flow issues as soon as they arise and keep an eye on all the aspects of your business.
In other words, investing in a pricey yet feature-rich cash flow budget tool can result in a great return on your investment, faster than you would expect. That being said, the next steps are to improve your current cash flow, to fill all the cash flow gaps that may arise on the way as well as to efficiently handle any and all cash surplus. As a matter of fact, improving your cash flow is an aspect of utmost importance – in the end; this is what will make your business more successful. Speeding up your cash flow will lead to the unparalleled development of your business, and it will address some key factors. Money makes the world go round, and this saying
certainly applies to businesses as well!
Predict Your Short-Term and Long-Term Cash Flow
As mentioned above, cash flow gaps occur all the time, especially if your business is only a couple of years old. There are several aspects that should be considered before hoping for a continuous and uninterrupted cash flow. For instance, do you offer unique products or services that nobody else offers in your area, or perhaps you provide your customers with a great price per quality ratio? Have you invested heavily in marketing and advertising campaigns designed to raise awareness about your business and about what you have to offer? It often happens that business owners who are just getting started have to kick start their business, they have to give it a boost before they actually get to enjoy the uninterrupted cash flow – and before that happens, it is not uncommon for them to experience some gaps on the way, which is perfectly normal as long as they have the tools and knowledge required for handling them in an efficient and professional manner.
For instance, you may sometimes have to borrow money or take out a business or commercial loan, if you plan to expand your business but you do not have the necessary capital for that. Nonetheless, before you do that, it is crucial to weigh all the benefits and the downsides of borrowing money, including the interest rate and the overall length of the loan, as borrowing money can make or break your business. It is the nightmare of every business owner to inadvertently lead his business to bankruptcy, to a path with no return.
Handle The Surplus Wisely!
The final aspect related to the cash flow that you need to consider during the expansion of your business is how will you handle the cash surplus. If your business is doing well, then the chances are that there will be some cash surplus. Every business owner predicts just about how much money his business will make within the next six months or year, and basically the cash flow surplus refers to the amount of money over the predicted sum. While this is certainly great news for every business owner, it is important to know how to handle the money – it is crucial to put some money on the side, as this is part of proper cash flow management, which can earn you some investment income in the long run, if you manage it wisely and correctly.
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