How Do You Manage Cash Flow for Your Business?

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Every profitable business knows that the figures on the bottom line don’t always paint such a pretty business throughout the course of the year. It might not surprise you to learn that in such a turbulent business environment, nine out of ten Aussie small businesses experience a negative cash flow month every year.

The defence against fluctuating cash flows is sound cash flow management. At darkhorsefinancial.com.au, we offer cash flow finance solutions to help Aussie businesses of all sizes meet their cash flow needs every month of the year.

More below!

Isn’t cash flow just working capital?

If you’ve sometimes confused working capital and cash flow, then you wouldn’t be alone. While the two are closely related and both affect your company’s balance sheet, working capital refers to your business’s ability to repay its immediate debts at any given period in time. On the other hand, cash flow means the funds flowing into and out of your business.

How important is cash flow in business?

We could be preaching to the converted here, but cash flow is critically important to the success of your business. After all, if the money isn’t coming in, it makes for a stagnant income statement. Having sufficient cash flow enables your business to operate, grow and weather fluctuations in the business environment.

Positive cash flow

Understandably, most businesses endeavour to have positive cash flow at all times. Positive cash flow means the company can cover all its obligations, including returning money to shareholders and paying expenses. For a small business, positive cash flow is a fantastic sign that its liquid assets are on the rise, allowing for the opportunity to reinvest back into the business or cover unexpected expenses!

Negative cash flow

For businesses operating in industries that don’t have significant cash flow potential or that operate on a seasonal basis, negative cash flow will be a reality at one point or another. Negative cash flow isn’t always an omen of things to come — firms with large balance sheets may still experience negative cash flow.

It makes sense that many business owners would be on the lookout for ways to improve their cash flow statements. Keep reading to learn more about managing cash flow in your business.

The cash flow equation you need to know

When you’re assessing your cash flow statement, it’s important to know the two main parts of the equation when it comes to cash flow:

1) Cash flow management

Managing your cash flow means keeping track of many aspects of your business. Money coming in is not the only area to focus your attention on. Monitoring stock levels, reviewing banking products, reducing overheads, managing accounts, reducing your overheads and assessing your business performance are the fundamental business operations you need to begin to manage your cash flow.

2) Cash flow forecasting

A period of rapid growth could have your cash flows looking buoyant, but true management requires forecasting the expected cash inflows down the line. Assessing projected expenses and sales can help determine whether you’re heading for a deficit or surplus cash flow period and should provide ample time to devise a strategy.

Using business cash flow lending to manage cash flow

One of the strategies available to Australian businesses are cash flow loans. Invoice financing is a cash flow loan that we specialise in at darkhorsefinancial.com.au. Unlike other business loans that might require a residential or commercial property to secure the loan, an invoice finance facility allows you to borrow money based on the total value of outstanding invoices that you have!

How does a cash flow loan work?

For those that want to boost working capital within their business or get extra cash immediately, a cash flow loan works to unlock the money that’s tied up in unpaid invoices. Similar to asset-based lending, where you offer physical collateral to secure a business loan, invoice financing is a finance option that uses unpaid invoices (your accounts receivable ledger) to secure finance.

Unlike traditional bank loans that provide one lump sum into your business account, cash flow loans operate as a line of credit. Your finance amount reflects a portion (up to 85%) of funds expected to be paid in accounts receivable, and you only pay interest on the used balance, not the full credit limit.

What are the interest rates on cash flow loans?

Interest rates vary across lenders, but we can help you find the right finance for your needs with the most attractive interest rates. Getting a quote is the most straightforward way to determine what interest rate might apply for your cash flow loan!