Most people, when they sit down and try to assess whether their business is on track for success, have a few key metrics they tend to focus on. First and foremost, they look at the quality of their employees, the strength of their customer base and the amount of revenue they're bringing in via sales.
You need to make sales and lock in revenue, but what good are sales unless you can collect the cash?
All of these data points are important, and having a good handle on them is a great place to start. But there's one other measure of business success that's equally crucial, and it's one that often goes overlooked. That would be cash flow. You obviously need to make plenty of sales and lock in revenue, but what good are sales unless you can follow through by actually collecting the cash you're owed?
Having healthy streams of cash moving into your business and out is a key indicator of your company's overall success. It's just as vital as productivity or sales or anything else. By paying more attention to cash flow, you can start to assess the long-term viability of your business model.
Keeping track of your company's performance
Every business leader knows to keep track of their profits and losses regularly, but few are aware that cash flow is equally important. According to the Department of Industry, Innovation and Science, smart corporate leaders know to keep track of everything – the payments they've taken in, bills they've paid and so on.
The more clearly things are documented, the better. If you have an accounting department that sends out invoices in a timely fashion and makes the timetable for payment abundantly clear, that can do a lot to give structure to your company's cash flow plans.
If you have a solid accounting framework and still don't have the money you need to meet your expenses each month, it might be time to make some large-scale changes to your business model. This could involve cutting costs or going after potential streams of revenue more aggressively.
Using cash flow to look ahead?
How much can you learn from looking at your company's cash flow? A lot, it turns out. The Conversation recently noted that there are two different levels of financial savvy. You can use cash flow statements to look back at your past and assess what's gone right and wrong – but what's even better is using this information to predict the future.
A study from the Journal of Small Business and Enterprise Development found that many companies fall short in this area. In fact, only 10% of businesses told the journal that they use cash flow-based profit and loss statements to make decisions about their future.
This figure is alarmingly low, and it raises a key question: Can't executives do better? They should be able to. By looking at past cash flow trends and predicting future ones, companies should be able to decide whether they need to do more for financial stability, such as pursuing avenues for premium funding.
Good financing can keep you on track
While disruptions in cash flow have the potential to hurt your business, one way to overcome some challenges is to secure premium finance services that can get you through a tough time. At Attvest Finance, we have a proven track record of providing such services.
Our goal isn't just to provide you with cash in the short term – more importantly, we want to add long-term value to your business. By giving you stability and predictability in your budgeting process, we should be able to do just that.
