Managing cash flow effectively

Section 1 : Understanding cash flow cycles

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The first step in managing cash flow effectively is understanding your cash flow cycle - the time it takes for money to flow into and out of your business. This typically starts with paying for goods or services needed to operate, followed by generating revenue through sales. For instance, if you order stock on credit, you might pay suppliers within 30 days but receive payment from customers much sooner. However, in service industries, payments may be delayed, which could create gaps in cash availability.

By analysing your cash flow cycle, you can identify patterns and anticipate when cash shortages or surpluses are likely to occur. This helps you to plan accordingly, ensuring that you have enough cash to cover expenses during slow periods and manage surplus funds effectively during busy seasons.

 

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