What is Cash Flow Management?

Cash flow management is keeping track of the money that goes into and out of your business. Even if your business brings in lots of revenue, your cash still might be tied up in receivables that have yet to be posted and inventory that has yet to be sold. In this case, the cash is not available to you to pay your bills or launch a new marketing campaign for a product.

Cash flow is the inbound and outbound flow of money of your business. The ratio between the two usually determines whether your brand has a healthy cash flow or if it is less than ideal and could cause problems. This information is usually found on your business’ cash flow statement. If more dollars come in than go out, you have more cash available for short-term expenses such as launching a new product or increasing your marketing spend around a major holiday. This is called positive cash flow.

Maintaining a healthy cash flow isn’t an easy task. Many brands struggle with it, and we’ll discuss the types of cash flows that exist and 5 ways to better manage your cash flow.

Types of Cash Flows

There are three cash flow types brands need to track and analyze in order to manage liquidity:

1. Cash Flows from Operations: This is the money that comes in from activities with customers, when you sell a product and collect payment. Operational expenses such as rent, payroll and supplies get subtracted from this amount.

2. Cash Flows from Investing: When you buy long-term fixed assets such as equipment or property, you’re investing money. These investment assets can be leveraged to provide additional access to cash for your business.

3. Cash Flows from Financing: This bucket represents money that goes in and out and is related to the company’s owners, investors and financing and is often referred to debt and equity.

5 Ways to Manage Cash Flow

1. Monitor Your Cash Flow Cycle

A cash flow cycle is the time that elapses between buying the raw materials, having the product manufactured, selling it, and eventually collecting payment. In order to monitor their cash flow cycle, brands need to keep an up-to-date balance sheet and profit and loss statements. By reviewing these documents regularly, issues from prior months can be inspected and inconsistencies corrected for the future.

2. Encourage Early & On-Time Payments

If you are not getting paid on time, you’re missing out on available cash that you could use to keep your business running. It doesn’t hurt to be proactive about getting paid on time: Set up automatic emails in advance to remind debtors to pay on time. If this isn’t a feasible solution, then a down payment might relieve some of the burden of getting paid late. A good way to encourage early payment is to offer an incentive to your customers, like a small discount when they pay early.

3. Stay on Top of Your Invoices

Although this is a tedious process, brands should keep track of their invoices. Send them out as soon as the products are delivered or services rendered to speed up the process. Your invoices should be designed with the reader in mind, so they can be quickly scanned and understood by the recipient, which will speed up the process further. Electronic delivery rather than sending them by mail also decreases the time you have to wait to get paid.

4. Cut Costs and Expenses

By regularly reviewing expense structures and benchmarking, brands can identify where unnecessary costs occur and cut them accordingly. As a result, you’ll have more cash available to meet your financial obligations, launch new marketing campaigns, and more. An experienced lender can provide you with the tools necessary to gauge how your brand’s operations compare to your competitors, and aid you in cutting costs and  attaining operational efficiency.

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5. Consider Purchase Order Financing or Inventory Financing

Inventory financing and purchase order financing are cheap alternatives for brands to gain fast access to funds by leveraging their current assets. These two options allow brands to get access to a line of credit that is secured by their current inventory or by presenting a purchase order from a supplier. It is wise to procure a line of credit before you need it - so you’re staying on the safe side should the need arise before you anticipate it.

Benefits of a Solid Cash Flow Management System

There are many benefits when successfully managing cash flow for your brand:

Your business won’t run out of cash

Employees are paid on time

You have enough cash for an emergency

Overspending is avoided

You can increase your marketing spend when necessary

You’re setting your business up for growth

And much more…

Get Help Managing Your Cash Flow with Assembled Brands!

Brands should aim for positive cash flow and there are many ways to achieve it. By continuously monitoring in and outbound cash businesses can strategize and make plans on how to increase liquidity. By reducing excessive spending as well as wait periods for the receipt of payments, your brand has more control over its finances and can use the available cash to fuel growth.

This is often easier said than done, but there are various alternatives that can help your brand keep enough cash on hand. Inventory and purchase order financing are two non-dilutive financing options that provide access to cash when the need arises.

Fill out our easy online application to find out if your brand qualifies so you can take your business’ growth to the next level. Apply today!