Cash Flow Management : A Critical Financial Aspect When Running a Business
Cash flow management is critical to all types of businesses. Large or small, entities with cash flow issues often struggle when meeting monthly financial obligations. Aside from payment of day-to-day overhead costs including payroll, businesses might need additional cash to settle payments to suppliers, pay loan amortizations and in some cases, to invest in new equipment or technology, as well as make plans for expansion.
That is why cash flow is regarded by many as the primary indicator of the health of their business enterprise. A positive cash flow means money projected to flow in as results of business operation exceeds the funds needed to meet financial obligations as they fall due.
Conversely, a negative cash flow denotes that the business does not generate the expected income or has trouble in collecting and managing their receivables,converting their inventories, paying their expenses and liabilities.
Organizing the Basic Elements of the Cash Flow Concept
Based on what has been described above, there are three activities driving the cash flow of a business: business operation, financing and investing. A good business practice is to organize the financial information of the three activities by way of a Cash Flow Statement. That way, they can determine the actual financial conditions of a business.
An even better practice is to use those financial data in making monthly Cash Flow Projections. The projections will then serve as income benchmark and investment and financing parameters to follow when making financial decisions.
Cash Flow from Business Operations include cash received from customers during the month, whether as C.O.D. or as collection of receivables due within the month. This will be reduced by cash paid to meet ordinary operating expenses and payment to suppliers in the same month.
Cash Flow from Investing Activities Cash disbursed to purchase additional equipment, software or other forms of capital expenditure.
Cash Flow from Financing Activities – Money coming from this particular activities include the business owner’s investments, and funds derived from bank loans or lending institutions. Reductions of cash flowing from these activities will be by way of payments to periodically settle related loan/s and partial withdrawals made by the business owner.
Businesses structured as C corporations present different kinds of investment activities as they deal with issuing shares of stock for subscriptions as well as pay dividends to stockholders.
Rental Businesses Not Exempt from Cash Flow Issues
Although rental businesses may seem less complicated that those engaged in manufacturing, trading and service-providing businesses, landlords are likewise susceptible to cash flow issues. Problems usually arise when a great number of tenants do not pay on time or eventually fail to settle the defaulted payments.
Landlords with multiple properties and firms invested in property rentals, usually hire project management professionals to avoid cash flow struggles. Many have come to realize that the root cause of rental defaults are results of inadequate tenant screening or insufficient background checking.
U.S. states have sifferent laws that limit the reasons by which applicants can be rejected as tenants. Still legal reasons for rejections are usually supported by documents or recommendations gathered by way of background checking.
In Georgia, Atlanta, property management stockbridge companies offer conventional services that come with guaranteed results. These may include assurances for tenant replacement, pet damage protection, best price for property repair and similar other promises, all serving as proof that their property management services can bring positive cash flow results.