How do you balance investing in growth and maintaining a healthy cash flow?

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Cash flow is the lifeblood of any business, but especially for small businesses that operate on tight margins and face unpredictable challenges. Managing your cash flow effectively means balancing your income and expenses, investing in growth opportunities, and avoiding cash crunches. In this article, we'll share some tips and best practices on how to achieve this balance and keep your business healthy and sustainable.

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1 Know your cash flow cycle

The first step to managing your cash flow is to understand how it works in your business. Your cash flow cycle is the time it takes for you to receive cash from your customers after you pay your suppliers, employees, and other expenses. Ideally, you want to shorten this cycle as much as possible, so that you have more cash available to cover your costs and invest in your business. To do this, you can try to speed up your invoicing and collection processes, negotiate better payment terms with your suppliers, and reduce your inventory levels.

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SaVita Brooks

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Prioritize cash flow: While growth is important, cash flow should always be a top priority. You should focus on maintaining positive cash flow by managing your expenses, collecting payments from customers on time, and reducing debt.

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Faizan Haq

Treasurer at MTN Group I Seasoned Treasury Management Professional
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Developing a comprehensive financial plan with a strong focus on forecasting helps in balancing growth investments with cash flow. This includes creating detailed revenue projections and understanding future cash flow needs. Using AI for precise forecasting can enhance the accuracy of these projections, aiding in making informed decisions about when and how much to invest. Effectively managing costs is key. This involves reviewing and optimizing operational expenses and identifying areas where costs can be reduced without impacting growth. Regularly monitoring costs and comparing them against industry benchmarks can ensure that the company remains competitive and cash flow positive.

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2 Plan and forecast your cash flow

The second step to managing your cash flow is to plan and forecast your future income and expenses. This will help you anticipate any potential cash flow gaps or surpluses, and adjust your actions accordingly. You can use a simple spreadsheet or a software tool to create a cash flow statement and a cash flow budget, based on your historical data and your expected sales and costs. You should update your cash flow projections regularly, and compare them with your actual results, to identify any deviations and correct them.

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Faizan Haq

Treasurer at MTN Group I Seasoned Treasury Management Professional
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Regularly monitoring cash flow helps in identifying potential shortfalls or surpluses early. This can be done through cash flow statements and utilizing AI-driven tools for real-time financial analysis. Prompt identification allows for swift actions to adjust operational strategies or investment plans.

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3 Maintain a cash reserve

The third step to managing your cash flow is to maintain a cash reserve, or a buffer, that can help you cope with unexpected expenses or emergencies. A cash reserve can also give you more flexibility and confidence to pursue growth opportunities, such as launching a new product or expanding to a new market. You can build your cash reserve by setting aside a percentage of your profits, or by securing a line of credit or a short-term loan from a bank or a lender.

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Raisa Rosario

Billing System Analyst | Billing processes and systems
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It is important to set aside this cash reserve or “emergency fund” as your top priority. Many of us decide to pay bills first then we save. In this case, it should be the opposite. On every pay day, set aside your savings for the month first, ( pay yourself first) then pay your bills. If you don’t follow this principle you’d have a hard time setting aside your cash reserves.

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Faizan Haq

Treasurer at MTN Group I Seasoned Treasury Management Professional
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Keeping a portion of assets in liquid form ensures that the business can meet its short-term obligations and invest in growth opportunities as they arise. This can be achieved through a mix of cash reserves and easily liquidable investments.

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4 Optimize your cash flow

The fourth step to managing your cash flow is to optimize it, or to find ways to improve your cash inflow and reduce your cash outflow. For example, you can optimize your cash inflow by offering discounts or incentives for early or upfront payments, diversifying your revenue streams, or increasing your prices or fees. You can optimize your cash outflow by cutting unnecessary costs, renegotiating your contracts, or leasing instead of buying equipment.

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Julieanne White

Method Property Solutions ??Award Winning?? Wrap-around service for property investors - covering North/South Ireland & internationally
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A great way to optimise cash flow is to ask for payment on receipt of invoice, you can also ask for stage payments depending on the size of job.

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5 Monitor and review your cash flow

The fifth step to managing your cash flow is to monitor and review it regularly, and to make adjustments as needed. You should track your key cash flow indicators, such as your cash flow ratio, your cash conversion cycle, and your working capital. You should also review your cash flow statement and budget, and compare them with your goals and benchmarks. You should also seek feedback and advice from your accountant, your financial advisor, or your peers, to learn from their experiences and best practices.

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6 Cash flow management tools and resources

The sixth and final step to managing your cash flow is to leverage the tools and resources that are available to help you. There are many software applications and online platforms that can help you automate and streamline your cash flow processes, such as invoicing, accounting, budgeting, and reporting. There are also many books, blogs, podcasts, and courses that can teach you more about cash flow management, and provide you with tips and insights. You can also join online communities and networks of small business owners, and share your challenges and solutions with them.

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Faizan Haq

Treasurer at MTN Group I Seasoned Treasury Management Professional
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Diversification of revenue sources can stabilize cash flow while pursuing growth. This might involve exploring new markets, adding complementary products or services, or adopting alternative business models. Diversification reduces reliance on a single income source, thus mitigating risks and ensuring a steady cash flow.

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How do you balance investing in growth and maintaining a healthy cash flow?

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1 Know your cash flow cycle

2 Plan and forecast your cash flow

3 Maintain a cash reserve

4 Optimize your cash flow

5 Monitor and review your cash flow

6 Cash flow management tools and resources

Office Administration

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How do you balance investing in growth and maintaining a healthy cash flow?

1

2

3

4

5

6

1 Know your cash flow cycle

2 Plan and forecast your cash flow

3 Maintain a cash reserve

4 Optimize your cash flow

5 Monitor and review your cash flow

6 Cash flow management tools and resources

Office Administration

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