Treasury is the most important financial indicator of a small business. Treasury helps ensure the company’s long-term survival, and its state must be a daily concern for every entrepreneur. Knowing the levers for an improvement in the cash flow of the company is essential to master it well.
Improve cash flow through increased sales
Racing to turnover to improve its cash flow is not the quick fix. It is even sometimes wrong to think that the increase in turnover can improve the cash flow . Indeed, the working capital requirement is proportional to the turnover and therefore of cause and effect, the more one increases its turnover, the more one increases its need of financing and thus one degrades its cash. This explains some of the fast-growing business difficulties. We must find solutions! In order to avoid cash difficulties or even improve its cash flow in the event of a rise in turnover,
Read also: How to invest my cash?
Managing my working capital requirements
Many CEOs do not master the notion of working capital and do not control cash flows (money coming out versus cash). The management of working capital requires the reduction of trade receivables and the decline in inventories. To control and improve its cash flow, strict procedures must be implemented. The need for working capital must be the main subject of all the players in the company. In addition, in order to improve its cash flow , the company manager will be able to identify the lines of financing for customer receivables (the call to a firm specializing in debt collection may be a solution in this case) and stocks of his company.
The choice of funding
Companies often tend to want to finance their investments through self-financing and therefore do not resort to borrowing. At first glance this type of decision may seem wise. Indeed, it is tempting to save the financial costs associated with borrowing. However, this reasoning does not find its purpose in the case of an optimum management of cash . Indeed, without a precise analysis of its profitability, the use of self-financing can lead to a deterioration of the cash flow of the company. In this case, and in order to improve its cash flow , it will be necessary to resort to a capital increase or to a medium- or long-term loan.
Improve my cash flow by improving my profitability
Many companies do not know how to determine their break-even point and do not implement a real commercial policy to achieve it. Since they can not cover their fixed costs or register their first profits, they record losses from year to year. This accumulation of losses leads to a reduction in their equity and consequently to a deterioration in their working capital. To improve the company’s cash flow in the event of a loss of profitability, it is necessary to replenish the capital by carrying out a capital increase.
Improving cash flow: the decline in activity
The effect of the financial crisis will have weighed on a majority of the sectors of activity which led to a decrease in activity. A distinction should be made between point declines and cyclical declines in activity. In the latter case, if no action is taken on the level of production and no fixed cost reduction policy is implemented, the company runs a high risk of deteriorating its cash flow, taking into account Increase in working capital requirements. To improve its cash flow , the use of a management dashboard finds its full utility. Lastly, the use of variable charges should be preferred.