The need for financing
There are so many instances in which a business needs financing. Even the most experienced entrepreneurs and business leaders will find that cash flow can be a problem. It’s also a fallacy that cash flow problems only affect smaller or newer businesses because the most time-served and asset-rich firms can still experience these issues.
Why is cash flow so important?
A going concern
Cash flow keeps a business ticking over. Even a profitable business cannot stay in operation if it struggles with cash flow.
To secure finance
Cash flow allows businesses to secure finance when they need it. If a firm has insufficient cash flow, it can secure a business loan against its assets. This can then continue to flourish by using that cash flow to operate successfully. A good way to improve business cash flow is by using a business cash flow credit facility and then managing it carefully.
To attract investors
Operating cash flow is one of the key measures that investors look at in evaluating any business. Investors will look at net income and revenue too, using the three measures to identify how well a business is able to sustain revenue and to grow in the future. Remember that even a highly profitable business can fail if its cash flow is insufficient.
To manage the business proactively
When a business has cash in the bank it has opportunities to move ahead. For example, it may want to buy in external expertise, to invest in R&D, to launch a marketing campaign, to upgrade its software, to train staff and so forth. By having that essential cash, the business can move quickly to capitalise on such opportunities.
Good cash flow can support a healthy business If a business can keep a healthy cash flow, it can plan ahead for its future expenses and income and then flag up any possible problems. This forward-thinking helps to maximise profitability by allowing business leaders to put longer-term plans in place.
Good cash flow maintains a great reputation A business with healthy cash flow can pay its suppliers on time, pay staff on time and meet its financial obligations. This helps it to maintain a positive reputation which is essential in today’s challenging business environment.
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