A business cash flow cycle explains how cash flows in and out of a business. Usually, money streams through a business in a fairly predictable way. Finding the right balance of expenses, revenue and receivables is an important part of getting a business’s cash flow cycle right. When that balance is achieved, it allows businesses to make the right amount of purchases to continue with their operations smoothly.
Best-selling business author Josh Kaufman compared the cash flow cycle of a business to running a bath – if you want the water in a bathtub to rise, at the right temperature, you add more water and stop it leaking out via a drain. Similar to revenues and expenses, the more water that flows in without draining, the higher the level of water in the tub.
Whilst receivables look fantastic on paper, they do not translate into actual cash until the money is deposited into a business’s account. To have the optimum cash flow cycle, it is important to get the promised receivables translated into payments as quickly as possible.
To manage a business’s cash flow cycle better, there are numerous cash flow management techniques that can be implemented. But if a business is failing to manage their cash flow cycle effectively, it is definitely worth considering working with a finance provider to help improve cash flow.Back