Exceptional advice to increase your cash flow
On this occasion I will talk about one of the secrets divulged little about how to have more cash flow in business and therefore make your financial management is more fluid.
Knowing the business cycle in your business will give you the benefits that the financial situation is all you want prosperous in your business, so you can take the profits that you’ve built as a target.
Business operation is the generation of actual funds to meet payment obligations and obtaining profits.
This generation of funds depends primarily on the use of time operating investments that make your business walks, which include cash, accounts receivable and inventories.
Skill you have in the management of these variables depend largely on both the liquidity and profitability of your company; Together these factors comprise what is called the operating cycle and cash conversion cycle:
In fig. 25 you can see the four essential elements to your company operates (there may be variations in the type of industry), joined by arrows symbolize the flow of cash with which you work, which is why this money is called Working Capital .
This cycle is so vital for companies is explained as follows:
First you have the working capital in the form of cash that goes to pay the Supplier to purchase goods that are inventory, these are converted to be sold either in cash (cash sales) or in Accounts Receivable (sales on credit ), which will have profit margins or profits.
It follows with the operation of an enterprise begins and ends with the cash on himself and that for each cycle is completed, the working capital is increased by the utility that comes from sales, which is generated more effective.
As an example take a company that has $ 1,000 cash with you buy from the supplier $ 1,000 in Goods should that become your inventory, that if sold at $ 1.500 becomes an account receivable of $ 1.500 that charged generate Cash $ 1.500 and that upon completion of the cycle of profits generated $ 500 cash back for that one cycle.
Assuming that each of these cycles takes about 30 days we will be talking to the company annually generate $ 6,000 of additional cash income ($ 500 x 12 turns per year), having invested $ 1,000 of your working capital, “not interesting”?
Now imagine that your cash conversion cycle takes only 15 days, cash generation would double annually $ 12,000 ($ 500 x 24 turns per year), with your own investment of $ 1,000 of working capital.
With this reasoning we realize that what the company or business should have as its main objective, to have the cash conversion cycle as quickly as possible in time, because to do, more cycles are completed in a shorter time frame.
The simple shortening of the time in each cycle generates more profit or profitability, this reasoning we reached the following conclusions:
1. cash generation is more a matter of time rate of investment amounts to
2. shortening the cycle determines increased profitability and value to the business.
3. The shortening of the cycle provides greater liquidity to the Business, which is the ability to generate cash in time to meet payment obligations.
4. The use of resources should be efficient operation for faster cycle cash flow or cash.
5. Should be sought first anticipate Revenue Expenditure, which is obtained is sufficient and effective prior to meet payments to avoid the need to seek funding.
We think now that companies can have cash surpluses or shortages of the same, creating an opportunity for banks to do business.
I hope this brief explanation makes you analyze what you’re doing or you do in your business, and you’ll manage your working capital, I invite you to comment here your views and how they are applying .
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