Working Capital

Managing Cash Flow

Having a positive cash flow simply means having more money coming in than going out. A positive cash flow is critical to the operation and success of your business, and is a key indicator of a healthy, well-run business. Unfortunately, especially in the beginning, maintaining a positive cash flow can be difficult.

There are two basic keys to maintaining a positive cash flow. First, you need to know how much cash is coming in and when, and second, you need to know how much cash is going out and when. The trick lies in balancing your income against your outlay. To do this, you need to be aware of a number of important factors. Is your business seasonal? Is your payment cycle in sync with your collection cycle? Are you managing your assets and inventory properly by purchasing only what you need, when you need it? In order to keep your finances running smoothly, you'll need to constantly evaluate all of these things and be prepared to change your practices as necessary.  

Getting Paid

Unless your customers pay immediately on receipt of goods or service-if you run a café for example-then you may be in a position where you are extending credit. In this case, you'll need an effective system for monitoring and collecting receivables, and you'll require a clearly defined collection policy. All of your customers must be aware of your collection policy and you must be willing to enforce it in the event that a receivable becomes overdue.

Financing Resources

There are also financing options available that can help you maintain a positive cash flow. Operating loans can help you cover your regular costs in advance of collecting the receivables to pay them. The lender will use a percentage of your accounts receivable as collateral against an operating loan. Operating loans are not one-time loans, but are set up with a lender as a series of pre-approved, short-term loans with a maximum limit, saving you the hassle of having to constantly negotiate new terms. Many new businesses require operating loans, but as your business grows, you'll ideally be able to operate without them.

Remember that North Peace Savings and Credit Union is here to provide the advice you need and to help your business grow from a start-up to a self-sufficient operation.