Strong Cash Management for Steady Cash Flow | Chase for Business

Cash flow is a simple enough equation. It is a reflection of the income or cash flow of a business compared to its outflow or money spent. You may have heard them referred to as accounts receivable and accounts payable.

Let’s keep things simple.

If your business makes more money than it spends, it has a positive cash flow. If the opposite is true, then your business has negative cash flow. No state is permanent, and cash flow can fluctuate throughout the year due to factors such as your industry, sales cycle, supply chain, and one-time expenses.

Generating cash flow is an active business decision and more of a natural occurrence in the business cycle. When trying to overcome a negative cash flow problem, an obvious option is to increase profits. But that’s easier said than done. Therefore, companies are focusing on the other side of the equation – cost reduction.

Cutting costs by cutting costs may seem like a simple solution, but the consequences can be many. Let’s dive deeper into how businesses can reduce turnover and see how effective cash management can help build cash flow.

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It’s makeup, not shaving

Reducing costs can sometimes be confused with eliminating them altogether. “Cost cutting” might be a better way to put it, and it comes with a lot of potential options. Here are a few.

Leasing

Equipment and equipment for production, land for buildings, inventory for sale. Many businesses choose to purchase these items. But for cash flow purposes, leasing can provide positive growth because it results in smaller, more scheduled payments and frees up cash for immediate business needs. Additionally, rental payments can be deducted as business expenses on your taxes.

Review of expenses

Certain recurring expenses are the cost of doing business and are included as accounts payable. They include things needed to operate, such as rent, supplies, and wages. Others, such as subscription services that continue past their intended use, can be lost when managing cash flow.

Therefore, it is very important to maintain an effective review process, such as preparing a balance sheet. This process can help eliminate these indicators and create positive cash flow.

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Purchase planning

Strategic purchases are less about cutting costs and more about timing them to coincide with when the business has the most cash on hand. This can take a simple form, such as negotiating end-of-month payments with suppliers. Or the timing may be complex, such as an incremental salary schedule that revolves around the business’s revenue stream. Each method can help you manage your cash better.

To save money, business owners can get creative with purchases. Buying in bulk is an option as suppliers usually offer discount prices for bulk purchases. Some businesses with similar supply needs form cooperatives to pool their purchasing power.

Close the holes, stay afloat

Maintaining cash flow is essential for any business. Take a look at your own business to see how you can find steady, positive cash flow:

  • Instead of buying rent
  • Review expenses for outdated or unnecessary expenses
  • Find ways to expand or increase your purchasing power
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Many cost drivers are unique to each industry and individual business, but it remains the same: create positive cash flow by cutting costs. Connect with a Chase business banker to discuss how you can improve cash flow for your business.

For Informational/Educational Purposes Only: The views expressed in this article may differ from those of other employees and departments of JPMorgan Chase & Co. The views and strategies described may not be suitable for everyone and are not intended as specific advice/recommendations for any individual. . The information is obtained from sources that are reliable, but JPMorgan Chase & Co. or its affiliates and/or subsidiaries do not warrant its completeness or accuracy. You should carefully consider your needs and objectives and consult with the appropriate professional(s) before making any decisions. Prospects and past performance are no guarantee of future results.

JPMorgan Chase Bank, NA Member FDIC. ©2022 JPMorgan Chase & Co.

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