With at least some indication of your future cash needs, you can then make some decisions regarding the best way to finance those needs.įor example, you may feel that interest rates are relatively low at this time and that you look for them to rise in the near future. Whatever the reason, preparing a cash flow budget is the best way of predicting these future needs for cash. The need for external financing may be the result of expanding your business, purchasing new property or equipment or just getting you through a normal seasonal down period. That is, it should help you determine when your business may need to rely on external financing as a source of cash. One of the key advantages of managing your cash flow is the ability to predict the future cash requirements for your business. However, the decision to automatically pay down debt may not be correct in all cases. It doesn't, for example, make any sense to invest a cash surplus at 5 percent when you can pay down a bank loan that is charging interest at 12 percent. Rightfully so because a short-term investment of your cash surplus is not likely to yield a return equal to or greater than the rate of interest you're paying on any of your debt. Paying down any debt you may have is generally the first option considered when deciding what to do with a cash surplus. Like so many other things you do for your business, deciding where to use your cash surplus requires some planning and your better judgment. Two of the most common uses of extra cash are: How you handle your cash surplus is just as important as the management of money into and out of your cash flow cycle. Before paying down debt or investing with your extra capital, learn the pros and cons of each.Ī cash surplus is the cash that exceeds the cash required for day-to-day operations. Once you've improved your cash flow, you'll likely encounter a lovely problem: a cash surplus for your business.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |