Understanding the basics of cash flow, what it is, and what it isn’t, is crucial to setting your business up for success. Business owners may have brilliant ideas but are often hampered by their lack of understanding of how cash flow works, and how it can help or hurt their business.
Cash is the fuel your business runs on, and without it, you can’t operate. You require sufficient cash to make sure you have enough funds to pay bills, payroll, suppliers, and all of the other things that your business requires to stay operational and afloat. Using it wisely will mean the difference between success, or a struggle to get by, week after week, month after month, year after year.
You generate the inflow of cash in many ways, and some examples include:
Savvy business owners who optimise their flow of cash adeptly leverage on financing, particularly their credit cards, to maximise their available cash on hand. Because not all financing options are created equal, they can either be a lifesaver or a debt maximiser. Understanding how to use these options available at your fingertips adeptly can make or break your business.
While many businesses think of loans first when it comes to financing, 84.3 percent of Malaysia-based SMEs experience difficulties in obtaining such financing. The most common reason is due to the losses reported in their financials.
An alternative that most business owners often forget about, is that their credit cards are readily-available sources of financing just sitting in their back pockets. For payments that do not typically accept credit cards - such as rental, supplier invoices and even payroll - services such as CardUp allows you to put them on your credit card anyway.
...84.3% of SMEs in Malaysia do not qualify for business financing...
This unlocks the full potential of your cards, allowing you to extend your payables up to 59 days, interest-free until your next card bill is due. Doing so greatly increases the flexibility of the cash you have on hand, granting you better cash flow management and allowing you to focus on other aspects of your business while making sure your payments get paid on time.
As important as understanding how cash flows in, you also need to understand where and how it seeps out, most of the time unknowingly. Some examples include:
Cash also flows out when you are required to purchase assets, if your owner or investors withdraw money, as well as in the repayment – plus interest – of any type of financing the business requires. Again, this is where many businesses get in trouble because of their overuse or misuse of credit. The difference between paying an additional 20 percent interest on your credit cards, and utilising it interest-free, can deeply impact your business, so make sure you are acutely aware of the charges you’ll pay and how they’ll compound over time.
Cash flow is always a topic that is top of mind for business owners, and big decisions are to be made every day. The more you understand your finances and cash flow, the better prepared you will be when crunches happen, and to take your business to the next step. While this is just a brief introduction of what cash flow is, it still is important and useful to know, no matter how big or seemingly-insignificant the financial challenges may be.