The Importance of Managing Cash Flow

The Importance of Managing Cash Flow

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In this current economic environment, managing cash flow is one of the most important things you do as a business owner or part of the leadership team. Ample cash flow enables taking advantage of strategic business solutions that can help increase your bottom line.

When thinking of cash flow, think of how to reduce your most significant expenses. There are three areas to consider: personnel, overhead, and vendor costs.

1. Personnel

From a personnel standpoint, look at technology, especially automation tools or artificial intelligence systems, and see what they can do to offset the additional cost of adding or replacing an employee.

Additionally, technology can create efficiencies for your entire team by simplifying day-today tasks such as keeping abreast of each client’s status in the sales funnel.

Though technology can drive efficiencies and increase productivity, you should balance the benefits of these tools with the requirement to proactively manage them and extract their value.

Therefore, headcount may not be significantly reduced but redirected.

2. Overhead

Next, from an overhead strategy, it is essential to continually monitor every dollar that goes out the door by exploring if there are less expensive or alternative ways to accomplish how you operate and still meet your business goals.

The importance of managing overhead costs became very evident during the pandemic where many companies still had to pay rent while their business moved to a work-from-home environment.

Strategically thinking through the best working model for your business will continue to be critical going forward as you try and balance cash flow with the business culture you want to create.

3. Vendor Costs

The last area to think about when managing cash flow is continuously looking at your vendor costs or costs of revenue and see if different opportunities will help the bottom line.

This can be accomplished by continually reviewing vendors and getting competitive bids.

Another alternative is to retrain employees to do the work the vendors were doing — especially if the work should be part of your core competencies and might enable a competitive advantage.

This diligence of always watching costs and having this behavior reinforced by the management team will set the tone for the organization.

Conclusion

Managing cash flow is essential for growing the bottom line and freeing up working capital to further grow your business.

Establishing a regular cadence to review your major expenses such as personnel, overhead, and vendor costs is key to proactively managing costs.

Further, instilling a cost management mindset throughout your team will also help ensure savings, which can then be leveraged to fuel future business growth. �