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Manage Your Cash Flow Effectively…. to Sustain Growth

Learn the importance of managing cash flow for small businesses and discover common mistakes to avoid. Get tips on cash flow projections, receivables management, and budgeting for optimal financial health.

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Manage Your Cash Flow Effectively…. to Sustain Growth

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  1. Manage Your Cash Flow Effectively…. to Sustain Growth Hope Hamilton Business Relationship & Credit Solutions Manager

  2. MANAGE YOUR CASH FLOW EFFECTIVELYTO SUSTAIN GROWTH Approximately 96% of small businesses fail within the first 10 years of operation. Why? Because they cannot pay their bills!! Source:

  3. WHAT IS CASH FLOW? Simply put, cash flow is the movement of money into or out of a business ...

  4. WHERE IS THE CASH IN CASH FLOW? Any company, no matter how big or small, moves on cash, not profits. You can’t pay bills with profits, only cash. You can’t pay employees with profits, only cash. SOURCE: Harvard Business Review’s March 1987 Issue “Where is the Cash in Cash Flow?”

  5. HOW DO YOU RECOGNISE A CASH FLOW PROBLEM? The answer is simple. If you spend $4,000 on rent, supplies and payroll this month, for example, but only take in $3,500 in sales, you have a cash flow problem, because you spent $500 that you did not earn.

  6. WHAT ARE THE CAUSES OF CASH FLOW PROBLEMS? Cash flow problems are caused by a number of reasons: • Failure to forecast & budget • Overestimated demand or sales • Poor record keeping • Too little cash sales and too high credit sales • Poor receivables management • Using the business account as a personal ATM • Not collecting and reconciling bank accounts • Poor business management

  7. 5fundamental reasons small businesses have cash flow problems

  8. COMMON ERRORS IN CASH FLOW MANAGEMENT Research conducted by experts in the USA over the past decade, have shown that there are five fundamental reasons small businesses have cash flow problems:

  9. 1. Confusing Profits with Cash Flow A fatal mistake many small businesses make is they fail to understand that profit is not the cash in the bank. Learn the difference between profit and cash flow and if you do not know, ask someone to explain.

  10. 2. Being Debt Free but Cash Poor Many small business owners avoid debt at all costs; however, sometimes it’s better to carry a little debt than to completely deplete your cash reserves. Borrowing to meet growing demand can be a wise decision if you’re confident that revenues will continue growing and support debt payments.

  11. 3. Having the Wrong Pricing Strategy Profits generate the cash required to keep your small business going, and the key to generating maximum revenues is a winning pricing strategy. Every dollar that is spent getting the product to the consumer must be factored into the pricing strategy.

  12. 4. Not having a Realistic Budget One major reason many small business owners lack optimal cash flow is the failure to plan for the unexpected. If the business grows faster than expected, you need to think ahead about cash needs for expansion, OR, if product is not moving quickly, then you must plan to manage cash flow while you get the business back on track.

  13. 5. Not having enough Cash on Hand at all Times Every small business needs reserves. A good strategy is to develop the habit of saving. Consider saving at least 10 cents of every dollar in revenue earned and do not keep it in the business operating account.

  14. Points to consider when managing Cash Flow • Prepare cash flow projections as often as necessary. • Collect your bank statements and reconcile them daily if necessary. • Manage your pro- duction cycle and inventory, because you must get products to customers faster if you want to improve your cash flow.

  15. Points to consider when managing Cash Flow • Manage your receivables. Investigate the people or business you extend credit to and put someone other than yourself in charge of collections. • Deposit receivables as soon as possible and do not spend it on non-business activities. • Ask customers to pay in cash if possible, or collect a deposit on credit sales. • Offer a discount if a customer pays an order faster than the credit period extended.

  16. Points to consider when managing Cash Flow • Manage the relationship with your suppliers and vendors and keep a good relationship with them in case you ever need to extend a payment deadline. • Do not purchase fixed assets or incur capital expenses out of cash flow unless you are cash rich.

  17. CONCLUSION Plan…Monitor… Budget…Be Aware Know your market Know your customer Know your product

  18. Hope Hamilton Business Relationship & Credit Solutions Manager Tel: (876) 949-6382 (Ext. 6260) Mobile: (876) 564-9059 Email: hhamilton@jnbank.com

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