S. Bank study, cash-flow management causes 82% of U
Cash flow is the lifeblood of every business. In fact, according to a recent U.S. business failures. Although seemingly counterintuitive, many experts putting cash flow management profits.
While profits are how a tree landscape-maintenance business a failure to manage the operation’s flow can mean running into problems one profitable accounting period not be able to offset. Another study, one by Intuit, revealed that 61% of businesses around the world struggle with cash flow, and 32% are unable to pay vendors, pay back pending loans, pay the owners or the employees cash-flow issues.
Cash-flow management 101In essence, cash flow is nothing more than the movement of money in and out of the tree care business. Cash flows into the business from sales of goods, products, or services. Money flows out of the business for supplies, raw materials, overhead, and salaries in the normal course of business.
An important key to improving the tree operation’s cash flow is often as simple delaying all outflows of cash as long as possible
An adequate cash flow means a steady flow of money into the business in time to be used to pay those bills.
More often than not, the operation’s cash inflows will lag behind its cash outflows, often leaving the business short of money. This shortage, or cash flow “gap,” represents an excessive outflow of cash that may not be covered by a cash inflow for weeks, months, or even years.
Properly managing the operation’s cash flow allows that cash-flow gap to be narrowed or closed completely before it reaches the crisis stage. This is usually accomplished by examining the different items that affect the operation’s cash flow – and looking at the various components that directly impact cash flow. This analysis can provide the answers to a number of important questions such as:
• How much cash does the business have?• How much cash does the business need in order to operate, and when is it needed?• Where does the business get and spend its cash?• How do the operation’s income and expenses affect the amount of cash needed to operate the business?
The “in” of cash flowIn a perfect world, there would be a cash inflow every time there is an outflow of cash. Unfortunately, this occurs very rarely in an imperfect business world. Thus, the need to manage the cash inflows and outflows of the business.
Obviously, accelerating cash inflows improves overall cash flow. After all, the quicker cash can be collected, the faster the business can spend it. Put another way, accelerating cash flow allows a business pay its own bills and obligations on or even earlier than required. It may allow the business to take advantage trade discounts offered by suppliers.
Naturally, the operation must its outflow obligations on time, but delaying cash outflows makes it possible to maximize the benefits of each dollar in the operation’s own cash flow.
How well the tree care operation’s cash flow is managed can have a significant impact on the bottom-line profits of the business
OutflowOutflows are the movement of money out of the business, usually as the result of paying expenses. Unlike a manufacturing business, where the biggest outflow most likely involves the purchase of raw materials, if the business involves selling its services, the largest outflow will most likely be for salaries. Purchasing fixed assets, paying back loans, and paying the operation’s bills are all cash outflows.
Arborists and other tree care professionals can regain control over their operation’s finances by adopting best practices and proper tools. A good first step involves how the operation pays its bills.
