Oxygen for your Business: Why Cash Flow Should be a Top Priority

Keeping a business running smoothly can take careful balancing of competing priorities and plenty of associated juggling.

One of the most critical factors, however, will be whether a business has the cash it needs to meet its financial obligations as they arise.

Staying on top of cash flow can end up being one of the most challenging tasks of all, even in the best of times.

Breaking things down to the basics will reveal ways of ensuring that cash flow never becomes a threat.

That will always be welcome, because keeping cash flow positive needs to be a top priority for every company.

An Especially Telling, Significant Financial Figure

Owners of successful businesses often take pride in profit-and-loss statements that seem to summarize their accomplishments.

While a business’s ability to generate a profit will always be worth prioritizing, that will never be sufficient, on its own, to keep a company viable.

Even companies that are ostensibly successful can end up going under because of problems caused by cash flow.

Should a business not have the cash it needs to make required payments, it can even be forced into bankruptcy by creditors.

Cash flow, though, is more difficult to measure and analyze than slower-changing figures like gross revenues or profits.

Companies with long histories of success like the one online at clsmith.com, however, always find ways of assessing and managing cash flow.

Three Factors That Influence Cash Flow

In most cases, conducting thorough, regular cash flow analyses will make a business more resistant to the problems that can otherwise arise.

Although it can take some fairly advanced accounting skills to put together a detailed cash flow analysis, more basic reports can be assembled even by people who lack such assets.

To begin with, it will always be necessary to look at a company’s accounts receivable to establish just how much it is owed at a given time.

Highlighting any persistent gaps between these figures and revenues will reveal one way cash flow can become problematic.

On the other side of the scale are accounts that become payable during the same time period.

Any provisions that allow delayed payments with penalties or interest need to be noted, as well.

Finally, any cash flow analysis will need to include debt service, particularly insofar as this will often be the area where the most pointed threats can arise.

Most industries have well-established standards regarding appropriate debt service ratios, and sticking to these guidelines will normally be wise.

Making Cash Flow an Asset Instead of a Liability

Businesses that benefit from the insights produced by accurate cash flow analyses tend to become much less likely to succumb to many of the most common related problems.

While it will almost always take plenty of effort to keep cash flowing appropriately, that will often be the single best way to ensure a viable business does not get needlessly tripped up.

A failure to appreciate the importance of cash flow, in fact, is one of the most common reasons for generally sound businesses to go under.

Even in cases where everything else seems to be in order, inappropriate cash flow can leave a business facing serious hardship or worse.

Fortunately, there are always ways of avoiding such problems and making them a lot less likely to arise in the future.