New money is always a good sign for any business. A steady cash flow keeps your company flexible, and minimizes risks when changing core values. The importance of cash flow is discussed often at businesstrex, and highlights a lot of the biggest advantages.
5. Growing The Business
The lifeblood of your company is going to be the positive cash flow it receives. You can’t grow beyond a certain point without diving headfirst into loan territory. Loans are common with a growing business, but can have a radically different outcome if you go into it already in the red.
Imagine taking out a million-dollar loan with positive cash flow. Later on, you run into issues and have trouble paying it back. With your steady cash flow, it is business as usual and won’t affect day to day operations. A company in the same situation with negative cash flow will resort to laying off employees, revising deals and possibly closing the entire company.
There is no telling what can happen in certain industries. Trends and market data can only predict so much before it all becomes redundant information. It’s the things you can’t predict that end up costing your company a lot of money. Putting a plan in place for these moments is simple with a clear head, and impossible if you don’t have cash flow. A business loses its ability to be flexible in unpredictable moments if there is no cash reserve to pull from.
In some years, taxes can fall under the unpredictability and growing a business category. There will be lean months in the operation of a business that will bleed into the next year. During these months, you can have thousands of payments due but won’t see them until much later. This creates a rubber band effect in the next year with what you report in profits. In the unfortunate event you end up owing, it’s no big deal if your cash flow stays consistent. For small businesses, this is a large tax hit that contains many complications with financial planning.
2. Industry Innovations
If you mass produce a lot of product, efficiency is important. You want to get the most for your money with materials, time and overall production costs. Keeping that number low will raise the amount of money the company makes on each product. If a better way of making that product comes along, having extra cash on hand to overhaul your facilities is helpful.
But the most important part of a positive cash flow for a business will always be investments. It allows you hire more employees, expand the company, move the company, improve the equipment and even market the product or service. Investing in your company is easy when you have cash coming in from the top and can reinvest it to make new cash. The circle of life for a business is not complete without a positive flow of cash.
Cash flow should always be monitored, even if the company has good value. There is no such thing as ‘too big to fail’, especially when the cash flow runs out. In order to maintain a healthy business, make the positive flow of cash one of your top priorities.