Cash flow is a big part of a successful business model, and yet many company owners may not be sure what having a healthy cash flow actually looks like. Healthy cash flow often makes it far easier to manage your business. Yet, how do you know when you have reached a level where you do not have to worry? Here are a few things to consider.
Do You Have Positive Cash Flow from Your Operating Activities?
A healthy business will generate more cash than it is spending. That means that all business operations should contribute to the growth of the cash coming into the business. Your operations should be growing your net cash flow over time. If this is not happening, that means the company is relying on external financing, and that tends to be expensive and impossible to maintain long term.
Are Your Customers Making Payments on Time?
The next factor to consider to determine if your company has healthy cash flow is whether or not your customers are making payments on time. Late payments make it difficult for the company to meet expenses. Even with costs related to fees associated with late payments, the overdraft fees or inability to make payments on debts can leave many companies without the cash reserves they need to maintain operations. If your company is struggling with getting customers to make payments on time, it may be necessary to adjust these types of transactions to lower at least some of the risk.
Are You Expanding Operations Based on Operating Activities?
Another core indication of your business’s cash flow health is what happens when you want to expand or upgrade your company. Are these upgrades funded by your operating activities and cash on hand, or are you relying on financing to make that possible? There are times when it is necessary to have positive net cash flow due to financing activities, as large expansions may require an influx of funds. Yet, when you have a negative net cash flow, but you are putting the efforts towards building your business, that can be a positive thing.
Having Healthy Cash Flow Matters
When you have a healthy cash flow, several key advantages occur. You can invest more in your employees, build better relationships with your suppliers, and have the technology best suited for your company on hand. It also means being able to grow your company over time to meet your long-term goals. Contact our experts to make sure your business is on the right track.
