How Businesses Can Generate Profits through Consistent Cash flow Mechanisms
How can your business generate profits through consistent cash flow mechanisms? Read this post to find out how.
There are many reasons why companies fail. One such reason for failure in business is the lack of funds and the exchange of money for providing goods or services. There is no point in having a great product when its market value is zero. Sooner or later, the competition for market share would shift to those who get enough cash flow regardless of whether they make a profit or not.
When a business has cash flow, that is a sign of viability. It shows that it has the capacity to cover its running cost over time. However, it needs to go through the growth phases until it can begin to add some percentage which can now be kept aside as profit for reinvestment. The need for cash in running a business is so enormous. Without it, some activities that are key to the business’ success might crash.
Why Cash flow is Important To Business Sustainability
Primarily, cash flow generates the working capital for running the day-to-day affairs of a small business. This is why it is considered optimum in the life cycle of a small business.
A business can be making high volumes of sales and no profit but needs to be careful with servicing debt. If it takes a large part of this money before the business breaks even, the cash flow will dry up, and the business will eventually fail. Entrepreneurs should ensure that wholesalers or retailers make some payment before delivering goods.
This is what remains of the sales after deducting the expenses of a small business. The main goal of running a business is profitability. A business owner should also be mindful of rapid growth, as it comes with unexpected circumstances that might need correctional measures. Here are some factors that might impede profitability:
Operational problems occur when there is an increase in the volume of production, and this is because the amount of communication, staff, and energy supply that was needed to produce one thousand units of a good per day would definitely increase when demand is high, and volume moves to a production of 2000 units per day.
Increased Corporate Spending
It is necessary to avoid expenses that have no direct impact on the business in its early stage of growth. Services such as facilities management, staff hiring, delivery services, promotions, and advertisement can be handled in-house. This way, the business avoids spending money unnecessarily and can divert such funds into more productive processes.
Human Resource Problems
Workers unfamiliar with the corporate goal of the organization can make grave mistakes that could cause business losses. Such mistakes could occur during direct interaction with the customer or negligence to standard operating procedures. They could also result from staff not having the necessary motivation to work as their salary might just be a way of staying alive. Payroll problems are potential issues that could hinder productivity.
Emmanuel Otori has over 9 years of experience working with 100 start-ups and SMEs across Nigeria. He has worked on the Growth and Employment (GEM) Project of the World Bank, GiZ, and Consulted for businesses at the Abuja Enterprise Agency, Novustack, Splitspot, and NITDA. He is the Chief Executive Officer at Abuja Data School.
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