Do You Need To Change The Way You Approach Cash Flow To Avoid Shipwrecking Your Company?
When you’re navigating the stream of cash flowing in and out of your business, it’s easy to run into problems. Cash flow issues plague companies of all sizes and eat away at the bottom line. But they’re not inevitable. And you can avoid shipwrecking your company by changing the way you approach cash flow.
The Burn Rate Problem
Far too many companies, especially startups, have a burn-rate problem. They have access to so much capital that it doesn’t matter how much money they lose while growing their business and they just burn through cash. It might be working for now, but when the bubble eventually bursts it’s going to be hard for companies with a high burn rate to adjust. In that case, they’ll likely end up in a negative cash flow situation.
Understanding Positive v. Negative Cash Flow
Positive cash flow means that your company’s liquid assets are increasing. When this is the case, your company has enough assets that easily convert to cash to cover your expenses. In a positive cash flow situation, you can cover operating expenses, essential business activities, settle debts, provide returns for shareholders, etc. with the money your company is bringing in.
On the other hand, your company has negative cash flow if your liquid assets are decreasing. There’s not enough money coming into the company through normal business operations to cover essential business tasks, you’re sinking further in debt, and there’s no safety net for future expenses or a financial crises. This is not a place you want to be.
Don’t Fall For Quick Fixes
When stuck in a negative cash flow, many businesses turn to the quickest solution they can come up with. Sometimes it’s putting off making payments to their vendors. Other times it’s settling for a high-interest rate loan. These “solutions” are not going to help in the long run. They’ll just increase debt while damaging your company’s financial standing. You’re going to need a more permanent solution going forward.
Rethink Your Spend Culture
Making strategic changes to your cash flow isn’t going to happen overnight. It involves changing the way your company and employees think about cash flow. You’ll have to start developing cash flow projections, revisiting the wording of customer and supplier agreements, figuring out how to control spending, and enforcing payment terms. And you’ll want to make sure you get everyone in the company on-board.
Navigating a change in spend culture is going to be a lot easier if you automate your business processes first. Leveraging automated solutions for business processes like accounts payable and procurement gives you the tools you need to enact and enforce company-wide changes. Contact NextProcess today to find out more about how business process automation and/or outsourcing can help you take control of company cash flow.