What do successful businesses have in common? They know how to manage cash flow for business. Cash flow is the beating heart of every business, but for some businesses, managing and improving cash flow is easier than others.
Cash flow for business is the net balance of the money coming into and out of the business at a specific point in time.
Money is continually moving into and out of a business. Inventory is purchased (cash goes out) and products are sold (cash comes in). Cash inflows can also come from:
Cash flow is the backbone of a business and helps ensure that businesses can continue operating.
To sustain and grow operations, businesses must have enough cash on hand to cover their expenses. Managing the business’s cash flow allows owners to ensure they have the funds to cover their operating expenses.
Good cash flow businesses will have more money coming into the business than going out. This is known as positive cash flow. Positive cash flow indicates that the business can:
On the other hand, a business with negative cash flow (more money going out than coming in) may struggle to remain operational for long.
While cash flow is important for every business, there are some that are great cash flow businesses. These include:
When it comes to cash flow for business, SaaS businesses excel. SaaS applications are cloud-based, are typically less costly to produce and have lower overhead compared to other types of businesses.
SaaS solutions also use a subscription-based model, which provides a regular stream of income for the business.
Real estate businesses are also great for cash flow, especially when it comes to leasing. Rental properties require an initial investment, but once leased, they provide stable, regular cash flow.
Of course, other factors come into play here, like operational costs, maintenance and other upkeep costs. Interest rate increases can also affect cash flow.
However, generally, real estate businesses are great for cash flow.
Service-based businesses, like those in the trades, often benefit from having lower overhead, allowing them to have better cash flow for business operations.
These businesses don’t typically require a large capital investment to get started, and if they do, it’s typically a one-time investment to obtain the equipment needed to get the job done.
Once a service-based business has developed a positive reputation and built a loyal customer base, they generally have a reliable cash flow.
Many food and drink businesses have great cash flow for business, particularly niche restaurants, cafes and food trucks. Smaller, localized and independent operations often have a loyal and regular customer base that provides them with stable cash flow.
Restaurants that are highly specialized often have an advantage here, too. Along with a regular and loyal customer base, they often have well-managed labor and food costs to help maintain cash flow.
Most IT firms and digital businesses have great cash flow for business. Like SaaS businesses, they have minimal overhead. Many operate using existing online infrastructure. Some IT businesses also have subscription-based pricing, which provides stable and reliable cash flow.
Digital businesses often don’t have to manage large inventories or worry about leasing physical space for their business, which also reduces operating expenses.
In many cases, small businesses have excellent cash flow for business because, like with niche restaurants, they have loyal customer bases. They’re run independently and offer something that other competitors cannot offer. They also have well-controlled labor and inventory costs in many cases.
It’s important to note, however, that not every small business will have great cash flow. The success of the business will still depend on its industry, how the operation is managed and the market.
Independent insurance and finance businesses often have stable and reliable cash flow for business throughout the year. They don’t often experience the same extreme highs and lows that other professional service-based businesses experience.
Working as a professional in the finance or insurance industry does require an initial investment in training and licensing. However, once this investment has been made, overhead is generally low.
It’s important to remember that while these businesses often have great cash flow, it ultimately comes down to management and planning. An IT firm, for example, can be poorly managed and lack the planning needed for growth or to sustain operations. The potential for great cash flow is there, but these businesses still require smart management to maximize the cash flow benefits.
Whether or not you run a business in one of the above industries, it’s important to learn how to manage and improve cash flow for business. The first thing to improving your cash flow for business is to know how to calculate your cash flow. After all, you can’t make improvements if you don’t know where you’re starting.
You can use the following formula to calculate your business’s cash flow:
Let’s put the formula above in an example:
No matter what type of business you run, cash flow management will play an important role in your success. It’s important to use the right cash flow solutions for businesses to ensure your cash flow planning and management is accurate and reliable.
The right tool will do most of the hard work for you, allowing you to spend more time on important tasks. Cash Flow Frog automates the management of cash flow for business, allowing you to create cash flow forecasts and more with the click of a button. Cash Flow Frog integrates with your accounting software to ensure the most accurate and up-to-date data is used to create your forecasts.
Automating your cash flow forecasting and management will save you time and money while ensuring that your data is accurate.
Best of all, you can get started with Cash Flow Frog for free and creating an account takes just a minute of your time.
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