Why Your Small Business Operating Cash Flow Matters

Among the many financial statements a business needs to evaluate in order to determine its level of success and profitability, from your invoices to your investment activities, operating cash flow is by far the most relevant financial factor of your business’s viability. It’s considered the essence of your company, precisely because it’s essential in allowing your business to run smoothly on a daily basis, and thus withhold its reputation as a trustworthy company in front of your investors, clients, and employees alike.

How your cash flow fluctuates and any setbacks that occur may actually point to a long-term issue with your business. That, in turn, may cause a spike in your bank’s interest rates, or cause some of your investors to pull out. If, for instance, a client fails to pay their bill in time, you may find yourself unable to cover your employees’ salaries, or a bill for your supplier. That is why mastering the art of cash flow management is vital for any small business in order to ensure an optimal growth rate and a secure relationship with all those you work with.

Providing a basis for negotiation

A healthy cash flow offers a peace of mind for you as the owner and the manager of your business, but it also paints a vivid picture for those that work with you. You have likely built your business on numerous partnerships, from those with your suppliers, manufacturers, as well as your bank and your investors. However, these relationships allow room for a change, especially if those involved notice that your business is flourishing, which is visible predominantly through how much money you see coming in on a daily basis.

When this becomes a trend, not just an odd case of cash influx, you can actually use this momentum to grow these relationships and make them more profitable for you and your company. Simply put, you can negotiate more affordable contracts with your suppliers, discounts, as well as better interest rates, since you have a strong leg to stand on in terms of regular payments.  

Enabling a strong reputation

As a small business, you cannot afford to make major mistakes in the financing sector. A missed credit payment or a late salary for your employees may cause some unwanted buzz, and reduce your revenue in the long run. Then again, finances aren’t the only aspect of protecting your company’s reputation, so it’s safe to say that some small businesses still neglect this vital aspect of brand-building.

A stable cash flow paired with regular payments leads to strong relationships in the industry, and allows you to protect your brand’s image from the inside out. It lets you prevent debts, cutting budgets for relevant strategies that let your business grow, and it creates an overall stable work environment for all your employees. Late payments, which are dependent on your cash flow, will not just have your current employees question their loyalty to you, but they will deter any potential partners and workers from beginning a relationship with you in the first place.

Preventing failed payments

Every small business needs to be extremely vigilant when it comes to tracking its cash flow, because any untreated issues may lead to a bottleneck that will end up wreaking havoc on your operations. Delays in payments can prevent you from pouring the needed cash into your latest innovation program, or covering your own operational expenses, purchasing new equipment, and the like. For small businesses, a single missed payment can mean halting the entire operation, which can in turn cause an avalanche of bureaucratic issues no young, growing business can afford to tackle.

That is why utilizing direct debit solutions to prevent cash flow setbacks is a tried-and-tested strategy to maintain a strong relationship with your clients, prevent late payments, handle failed payments, and keep the process as automated as possible. It also reduces the waiting time to almost making those invoices instantly payable, with your clients’ consent, of course. With smooth, automated systems such as these, your cash flow no longer needs to suffer, and your reputation will remain intact.

Investing in innovation

Small businesses tend to focus on pure survival, especially in the first several years of growth and development. However, enabling a stable influx of cash on a daily basis means that you can focus on other priorities, such as a new strategy to upgrade your product or service, a new solution to implement that will help speed up your operations, or simply to boost your office potential with equipment of better quality.

In so many ways, any form of innovation depends on your cash flow, and failing to manage it properly may cost you not just clients or profit, but also numerous opportunities to expand your business. You may be just one pricey marketing initiative away from a significant market breach, hence the need to make sure that your everyday earnings can handle the price of such a leap of growth.

While your annual budget forecasts and your overall financial strategy are always fair indicators of how strong and sturdy your business is, you should never neglect the importance of your cash flow and its growth rate. It’s the lifeblood of your business, and you as its owner need to be able to keep the reins in your hands, in order to see your company skyrocket towards success.

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