Blood and Oxygen

#EMBA27

Blood and oxygen=Profit and Cashflow, where profit is the lifeblood of the company and Cashflow is the Oxygen.
Now imagine that there is a ghastly motor accident where people sustained injuries and are bleeding. Depending on the severity of the injuries, they can survive for a few hours if an ambulance does not arrive on time. On the other hand, it is unlikely that anyone who needs resuscitation and oxygen will survive beyond a few minutes.
In the same vein, without a constant positive cash flow, a business will not survive even if it’s profitable. Profits are crucial for businesses to survive, but they are not essential for short-term survival.

As a business owner, it is crucial to understand the difference between the two financial terms and how it impacts the sustainability of a business, to enable you to make informed decisions.
Now, let’s unpack both terms. Cash flow describes how much money comes in and goes out of a business. It relates to the liquidity of your business. Businesses can not and will not survive without cash flow.

Profitability represents the income and expenses of the business. When expenses are deducted from income, the result is profit or loss. Profits are important, but it is cash flow that keeps the business going.
Despite this, long-term losses can strain the cash flow of a business. But over a mid-short timeframe, negative cash flow can terminate the business.

Currently, many businesses, especially in Nigeria, are feeling the squeeze of the economic crisis we are experiencing.

Here are a few ways to maintain positive cash flow in your business.

1. Offer discount for early payment. Everyone loves a discount so if you offer customers one for booking and paying their bills ahead of time, you are creating a valuable situation for both of you. And of course, getting the cash in early helps your cash flow.
2. Avoid credit as much as you can. As badly as you might want to make the sale, the late payments will hurt your business’s cash flow, and even if you want to opt to sell for credit, be sure to increase the selling price at least.
3. Improve your inventory. Make a list of those goods and services that aren’t moving at the same pace as your other products or services. They tie up a lot of cash and can have a negative impact on your cash flow. Be objective and not emotional about this.
4. Master the art of negotiation. If you maintain a friendly relationship with your vendors or suppliers, you will have a better chance of negotiating better terms with them. Offer suppliers early payments They might be willing to give you a discount if you make payment ahead of time
5. Note down all spending and go through the spending report weekly in detail to see if anything can be cut or trimmed down so that you can reduce the amount of money going out the door each month.
6. Increase prices. Increasing prices is a concept that scares many business owners including me. We are worried it will lead to reduced sales. But, you know what? It’s OK to experiment with pricing to find the perfect number. There is no way to know how high the customers are willing to go unless you take a chance.
7. Connect with paying customers. Determine effective activities that can help to connect you to paying customers so that you can close enough sales. You need to make sure you are consistently making sales to improve cash flow because it all comes down to the numbers.
   At the end of the day, an effective system for cash flow management is based on the right bookkeeping and accounting strategies. You need to be able to track every transaction and label them accurately because data-driven decisions are important.
   Someone might be saying; I will be stretching myself thin with so many responsibilities and it will be difficult to stay consistent.
   You might want to consider outsourcing your bookkeeping and accounting to an accounting team that will help nip cash flow issues in the bud.