Exceptional Council to increase your cash flow
On this occasion I will talk about a little known secrets on how to have more cash flow in business and therefore make your financial management is more fluid.
Knowing the economic cycle will give your company the benefits to the financial situation is thriving everything you want in your business, so you can take the profits that you’ve drawn as a target.
The operation of the business is the generation of actual funds to meet payment obligations and obtaining profits.
This generation of funds depends primarily on the time management of investments that make operating your business walks, which include cash, accounts receivable and inventories.
Skill you have in the management of these variables depend largely on both the liquidity and profitability of your company; Together these factors make up what is called the operational cycle of conversion of funds or economic cycle:
In fig. 25 you can see the four essential elements with which your company operates (there may be variations by the type of industry), linked by arrows symbolize the flow of cash with you work, hence this money is called working capital .
This cycle is so vital to the business is explained as follows:
First you have the working capital in the form of cash that goes to pay the Supplier to purchase goods that form the inventory, these are converted to be sold either in cash (cash sales) or in accounts receivable (credit sales ), which are profit margins or earnings.
It follows with the operation of an enterprise begins and ends with the cash on himself and that for each cycle is completed, the working capital is increased by the utility that comes from sales, which is generated more effective.
As an example take a company that has $ 1,000 in cash with you buy from the supplier $ 1,000 in Goods should that become your inventory, that when sold at $ 1.500 becomes an account receivable of $ 1,500 to be charged generate cash of $ 1,500 and that upon completion of the cycle of profits generated $ 500 cash back for that one cycle.
Assuming that each of these cycles takes about 30 days we will be talking about the company that annually generate $ 6,000 of additional cash income ($ 500 x 12 turns per year) had invested $ 1,000 of your working capital, “not interesting”?
Now imagine that your funds conversion cycle takes only 15 days, cash generation would be twice annually $ 12,000 ($ 500 x 24 laps a year), with your own investment of $ 1,000 Working capital.
With this reasoning, we realize that what the company or business should have as its main objective, to have the conversion cycle funds as quickly as possible in time, because to do, more cycles are completed within a time less.
Simply shortening the time in each cycle generates more utility or profitability, this reasoning reached the following conclusions:
1. cash generation is more a matter of time speed that investment amounts
2. shortening the cycle to a higher profitability and value to the business.
3. The shortening of the cycle provides greater liquidity to the Business, which is the ability to generate cash in time to meet payment obligations.
4. The use of resources should be efficient operation for faster cycle cash flow or cash.
5. Should be sought first Income anticipate that the costs, which will be sufficiently effective and after to meet payments to avoid the need to seek funding.
We think now that companies can have cash surplus or shortage of it, creating an opportunity for banks to do business.
I hope this brief explanation makes you analyze what you’re doing or going to do in your business, and management that will give your working capital, I invite you to comment here your views and how they are applying .
Posted in 
Tags: