Trucking 101: How to manage cashflow
Cashflow is what keeps a business operating in the short term. You can look at this concept as the sum total of cash coming into and out of your business in a given timeframe, often a month. The amount of available cash on hand can be a major benefit or detriment to trucking companies, so understanding how to manage it is vital for continued success. Use the following advice to improve your cashflow management strategies.
Understanding cashflow
Cashflow is an easy figure to understand once you're familiarized with the basic concept. The net result of adding all your incoming cash - from invoices tied to completed work and a variety of other potential sources - and subtracting your outgoing cash gives you a snapshot view of short-term financial performance. A positive cashflow figure indicates your organization's liquid (meaning easily converted into cash) assets are growing, as Investopedia pointed out. A negative cashflow reveals problems that must be addressed for a business to continue to operate without major problems.
Tips for managing cashflow
A negative cashflow can quickly lead to a company running out of money. As The Balance Small Business said, this is one of the fastest ways for a company to shut down, and it's easy to see why. To avoid this especially dangerous pitfall, your enterprise needs to maintain visibility into cashflow and ensure it remains positive.
Regularly track and manage cashflow
Keeping tabs on your cashflow is a significant need. To have any sort of accurate, current understanding of your company's cashflow situation, you must either invest the time and effort yourself or have a trusted employee or your business accountant handle the task. You can save time by using the cashflow reporting feature in your accounting software.
No matter how you choose to handle this task, the end result is essentially comparing cash in, in the form of total sales and other income, and cash out, for a wide variety of expenditures. If you have a positive cashflow, you can continue to follow the good habits that led you there in the first place. If the flow is negative, you need to start looking for areas to make spending reductions and ways to increase sales.
Review expenses and assets
Expenses that aren't totally necessary for your business harm cashflow but fail to provide something your organization can't live without. Regularly review spending to see if certain expenses can be consolidated. Perhaps you can switch to using one business software provider and receive a reduced rate, or you can negotiate with mechanics and parts suppliers. In a similar vein, you can also review existing assets to determine if anything substantial is no longer needed. Although not always a possibility, selling off excess, unused equipment is a far better choice than letting it sit and depreciate in value without receiving anything in return.
Be aware of delays in invoice payment
Just because a job is completed doesn't mean it can immediately benefit your cashflow. Until an invoice is paid, the money you're owed can't be used to address expenses. Make sure your cashflow calculations take these delays into account and don't credit a finished job when the check is still weeks or months away from arriving.
To address delays in payment and general cashflow concerns, consider finding a reputable financial institution with which to partner. Access to effective banking options and tools alongside lending and financing options that take cashflow needs into account, such as invoice factoring, help companies maintain insight into their cashflow situation and make decisions that keep it positive. To learn more, reach out to TAB Bank today.
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