Raj is a seasoned professional with over 22 years of experience working in India and the US. He is a serial entrepreneur and has built and sold businesses in areas such as Financial Services, Prepaid Internet Retail, Loyalty, Merchandising, Reward and Recognition, Open Banking, and Expense Management. Raj is also an active Angel Investor and Mentor and has invested in over 25 companies.
In the present times of cut-throat competition, businesses have to undergo a fair deal of rigor to succeed. And one activity that is essential for a business’s growth, success, and sustainability is cash flow management. Yes, cash flow management plays a vital role in an organization’s survival and success! For an entrepreneur keeping a close watch on an organization’s cash flow is essential as it can help identify unforeseeable issues and find solutions to existing problems. Just having a steady top line or bottom line profit is not enough and usually businesses cannot move forward without cash. Hence, analysing cash flow management becomes imperative. Moreover, it also helps an entrepreneur to mitigate risks, make investment plans in a systematic manner and collect due expenses from clients on time. This will eventually enable in unlocking larger value and potential for the enterprise and help increase the rewards for their businesses at large. Besides, it can also help make strategic decisions and help you understand your cash flow better.
Cash management of a business is not entirely focused on expenses or revenues but has much to do with the movement of funds through an enterprise. More often, organizations go insolvent not because they are unable to generate revenue but because they do not pay heed to the cash movement and eventually exhaust their available funds. Hence enterprises must regularly assess their cash-flows to ensure economic viability. Here are the top 4 reasons which highlight the need for seamless cash flow management for SME’s.
Strategic Planning
By ascribing to cash flow management techniques, entrepreneurs can gain an in-depth idea of their businesses’ working capital and understand their present finances. Which in turn helps them devise strategies for its future growth and expansion.Whilepoor cash flow management can jeopardize a business’s interest and harm its prospects. As at times, entrepreneurs can have an incorrect understanding of their finances and take select business calls which may bring in trouble.Additionally, at times,entrepreneurs dwell in the illusion that their business is going strong. However, the reality might be far from different and this could be because of multiple reasons such as:-
- Failing to issue invoices to the customers
- Forgetting to get due receivables from customers
- Improper record management.
- Hence it is imperative to have all the records of cash flow statements to ensure a sound and well-rounded business.
- Analytical and financial representation
As an entrepreneur constructive management of funds is essential,asit helps one understand the areas in whichtheyare spending their money and utilizing their capital. Hence,staying on track with your working capital will help enterprises curtail redundant expenses and invest the same amount in the right places.
- Financial Management
Financial management is a skill that entrepreneurs must know/ learn for effective business managementand planning. As mismanagement of financials or working capital can cause problems for an organization and impact its brand value. By implementing a cash flow management protocol or system, business owners can avoid financial irregularities as well as have an up- to date record of their financials, which is especially helpful while clearing payments of vendors, dealers and other third-party entities.
- Business expansion
Expanding a business is always exciting for an entrepreneur, but can become overwhelming too, if one does not act at the right time. Hence, augmenting a business at the incorrect place and inappropriate time will do more harm than good, and cause long-term financial and reputational damage to the business. So, by implementing a cash management system, not only can entrepreneurs be aware about their financial position, but also act at the right time for business growth and expansion.
The last couple of years have seen multiple SMEs winding down their operations due to ineffective cashflow management. And we all know that liquidity is the heart and soul of any business and even a tad bit of mismanagement and errors can lead to bankruptcy. Moreover, manual management of cashflow is also a huge challenge that SMEs face.
Currently there are financial management software’s available that enables the automatic calculation of the inflows and outflows and business and helps entrepreneurs to sit at the top of their cash flow management. Such software’s help businesses in select business areas such as, account receivables, account payables, spend managements, expenses etc. Such systems enable entrepreneurs to identify the due receivables from their customers on time. Moreover, such systems can automate their receivable management and collect their payments faster. Which in turn helps reduce their working capital as they do not have to waste their time and effort in chasing their customers for receivables due. Additionally, such systems also help them to identify their most profitable customers through cash flow predictive analysis. Besides, these systems are designed in such a way that it can schedule payments and give reminders to collect payments, thereby enabling seamless management of cash flow. The use of AI and ML has made the lives of entrepreneurs simpler and easier. Tasks which were performed manually earlier, have become automated now. Automatic reminders about payables and receivables, payment schedules etc have prevented many businesses from losing their funds. A system which can capture all the losses a business is incurring along with the profits it makes; help entrepreneurs optimize their working capital at the fullest potential. Additionally, it facilitates better decision making and leads the business towards growth. Hence, the need of the hour for businesses is to manage their working capital at full throttle if they want to have an organized business structure that would churn more profit and augment the success of their business. The ultimate goal of cashflow management is tackling the collections of an enterprise against the operational spends in order to attain a positive cashflow. The bottom line is, “Cash is king, profit is sanity, turnover is vanity, and cashflow is reality.”