Here's how you can effectively manage cash flow in a new business.

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Managing cash flow is crucial for the success of any new business. Without a solid handle on cash coming in and going out, even the most promising ventures can quickly find themselves in trouble. Cash flow management is the process of tracking how much money is coming into and going out of your business. It's about timing, ensuring that your inflows match or exceed your outflows to avoid running out of money. This might sound daunting, but with the right strategies, you can keep your business's financial health in check.

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Zain Raza Nayani (ACA)

LinkedIn Community Top Voice I Head of Finance I Strategic Advisor I Process Optimization I System Implementation I…
Mansi Parmar

Treasury Analyst

1 Budget Wisely

Creating a realistic budget is your first line of defense in managing cash flow. Start by estimating your startup costs , operational expenses, and expected revenue. Be conservative with your income projections and overestimate expenses to build a cushion for unexpected costs. Regularly compare actual income and expenses against your budget, adjusting as necessary. This will help you anticipate cash shortages and make informed decisions about where to cut costs or when to seek additional funding.

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Zain Raza Nayani (ACA)

LinkedIn Community Top Voice I Head of Finance I Strategic Advisor I Process Optimization I System Implementation I Data Analytics I Finance Business Partner
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For a new business, it's essential to assess financial viability using techniques like IRR and NPV. Once confident the project is feasible, considering the investment, expected revenue, and expenses, we set this model as a benchmark for comparison with actual performance. To manage cash flow: (*)Review financial health on a set frequency (monthly, quarterly).. (*)Compare working capital injection against the financial model. (*)Analyze turnover ratios like receivables and inventory. (*)Identify the unbudgeted expenses. (*)Negotiate with vendors to extend credit periods. (*)Reevaluate revenue assumptions with sales and marketing teams. (*)Secure running finance from banks if OPEX exceeds revenue. (*)Repeat again all above steps.

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Mansi Parmar

Treasury Analyst
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Cash flow forecasting for daily, short-term, and long-term periods is essential. It provides insight into the inflow and outflow of funds, helping to determine whether to allocate resources for debt repayment or investment. If a near-term cash shortage arises, strategies like accelerating collections, offering discounts for early payments, Bill discount with banks and securing cash-on-delivery sales can be employed. To manage accounts payable, negotiating longer payment terms with vendors can be beneficial. Building strong vendor relationships allows for extended payment timelines. Additionally, bill discounting of vendor invoices and UPAS LC discounting from banks can assist in contingency planning and effective cash flow management.

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Jose Bueno

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Cash flow forecasting is a crucial aspect of any business's financial management. It involves predicting cash inflows and outflows over a specific period, usually on a monthly or quarterly basis. By accurately forecasting cash flow, businesses can make informed decisions about their financial operations, plan for future expenses, and ensure they have enough liquidity to meet their obligations. Cash flow forecasting is particularly important for small businesses and startups, as they often have limited resources and need to carefully manage their cash flow to stay afloat. However, even established businesses can benefit from cash flow forecasting to optimize their financial performance and minimize the risk of cash shortages.

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2 Monitor Receivables

Keeping a close eye on accounts receivable is essential for maintaining healthy cash flow. Establish clear payment terms with customers and follow up promptly on overdue invoices. Consider offering discounts for early payments to encourage quicker cash inflows. Utilize invoicing software to track billing and collections efficiently, and don't hesitate to send reminders or employ collection agencies for persistently delinquent accounts. Your goal is to minimize the time between delivering a service or product and receiving payment for it.

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Adilson Villalobo da Silva

Gerente Administrativo Financeiro no Ferraz de Camargo Advogados
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Quanto ao monitoramento das contas a receber, destaco dois pontos: 1. Ter um fluxo de cobran?as organizado e efetivo. Você pode optar por contratar uma empresa de cobran?a, se for o caso, lembrando que nesse ponto, você terá um gasto adicional, mas que pode compensar, em alguns casos. Caso opte por cobrar usando sua própria equipe, tenha um sistema que lhe permita fazer uma cobran?a de forma organizada e estabele?a um fluxo adequado para esse trabalho. 2. Fique de olho no seu ciclo de caixa. Tenha o menor distanciamento possível entre o recebimento das vendas e o pagamento aos fornecedores. Isso pode reduzir situa??es deficitárias e eventuais necessidades de capital de giro.

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Jose Bueno

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To better understand the concept of cash flow forecasting, let's consider a couple of examples. Imagine that you run a small retail business. By analyzing your historical sales data, you can estimate the average monthly sales for the coming year. Based on this information, you can project your cash inflows for each month, taking into account factors such as seasonal fluctuations and any anticipated changes in customer behavior. On the other hand, you also need to forecast your cash outflows, including expenses such as rent, utilities, inventory purchases, employee salaries, and loan payments. By combining your projected cash inflows and outflows, you can determine whether you will have a positive or negative cash balance for each month.

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3 Manage Payables

Just as you want to accelerate receivables, it's important to strategically manage your payables. Negotiate with suppliers for extended payment terms without incurring late fees. Take advantage of any discounts for early payment if it aligns with your cash flow situation. Prioritize payments to avoid damaging critical relationships and maintain a good credit standing. Keep in mind that while delaying payments can conserve cash in the short term, it's not a sustainable strategy and should be balanced with maintaining trust with suppliers.

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4 Plan for Contingencies

Unexpected expenses can derail even the most carefully managed cash flow. Set aside a reserve of cash to cover emergencies or slow business periods. This contingency fund acts as a financial buffer, ensuring that you can meet your obligations even when cash inflows are less than ideal. Review your insurance policies to make sure you're covered for likely risks, which can prevent significant financial losses from unforeseen events.

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Adilson Villalobo da Silva

Gerente Administrativo Financeiro no Ferraz de Camargo Advogados
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A cria??o e manuten??o de um fundo de contingência é extremamente importante para o planejamento de contingências. Defina sempre um percentual do lucro para ser aplicado em um fundo de contingência. O capital destinado ao contingenciamento pode ser investido, preferencialmente, em fundos de liquidez imediata. Diversificar esse fundo também pode ser uma boa alternativa para se obter melhores retornos sobre o capital investido.

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5 Optimize Inventory

For businesses that deal with physical products, inventory management can significantly impact cash flow. Keep inventory levels in line with sales forecasts to avoid tying up cash in excess stock. Implement a first-in-first-out (FIFO) approach to reduce the risk of obsolescence and write-downs. Regularly review your inventory turnover rates and adjust purchasing accordingly. Effective inventory management ensures that your cash isn't sitting on shelves but is available for growth opportunities and operational needs.

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6 Cash Flow Forecasting

Regular cash flow forecasting is vital for anticipating future financial positions. Project your cash flow weekly or monthly to identify potential shortfalls and surpluses. This foresight allows you to take proactive measures, such as securing a line of credit before you actually need it or investing surplus cash into growth opportunities. A well-maintained forecast keeps you one step ahead, enabling strategic decision-making for your business's financial health.

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Here's how you can effectively manage cash flow in a new business.

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1 Budget Wisely

2 Monitor Receivables

3 Manage Payables

4 Plan for Contingencies

5 Optimize Inventory

6 Cash Flow Forecasting

Financial Management

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