The worldwide outbreak of the Coronavirus has changed the situation for the world economies. There have been blanket bans on international traveling and various restrictions on people. Individuals were not able to go for jobs, which has had a huge impact on the economies of various countries. The Coronavirus outbreak has resulted had such a big impact that it has gradually resulted in a global economic slowdown.
The management of all the businesses will have to maintain the proper liquidity in the business so that they are ready to face any situation in the business environment. Taking care of the inflow and outflow of cash in the business is really important as it will help to keep the business afloat during the times of pandemic.
How can you maintain your Business Cash Flow?
Some of the best ways to maintain improve liquidity in the company are as follows:
1.Analyzing and Understanding your Business
The analysis is one of the very first steps that management should take to remedy the situation. Analyzing your business and the expenses the company makes will help in deciding whether a particular expense is required or not. If the necessary analysis is made, then the business will save a lot of funds, which can be utilized in some different business activities.
2.Liquidating old and Obsolete Inventory
Technology plays a major role in businesses, and every few years, the technology keeps changing. This results in the accumulation of inventory, which may be obsolete and require a lot of resources. The management should try to sell this equipment, and the proceeds received after selling them could be used in buying better versions of the machinery.
3.Increasing Prices of the Commodity or Service
This is the simplest solution that can be used by a company to maintain or increase the cash flow. If the prices of a commodity are raised, the people will have to pay more, and the business will get that much profit. This is a good option for the business, but in the long run, the competitors of the business might bring similar commodities in the market but at a lesser price. This would hamper the profitability of the business.
4.Getting Credit
Getting credit can be a very good option for a business, but the management has to keep in mind that the credit has to be returned with interest. So the management of a company should fully understand the risks and then apply for credit. It is recommended that a line of credit should be used by a business only in the case of emergencies.
5.Maintaining a Proper Budget
Maintaining a proper budget can go a long way. A budget will help the management in keeping all the expenses of the business in check. Maintenance of a budget will help the management in the proper allocation of resources and will also help in planning the future of the business. This will also help in understanding how long the company will survive if it receives no funding (also known as the burn rate).
6.Taking Assistance of a Collection Agency
Many times the business gives out debts to entities that are in need, but even after the work is done, these debts are not paid back. This huge amount is then blocked as it cannot be utilized by the business. In such conditions, the management should ask for the debts to be paid back, but in case the entity does not pay you back, you may utilize the services of a collection agency. This collection agency is a third party and will help in getting back the debt from the entity.
These are some of the systems by which a business can maintain its cash flow. In the present situation, when there is a looming threat of recession in the background, it is highly important for a company to have proper cash flow so that the day to day business activities are taken care of.
The management should also take care that the working capital is maintained in a proper ratio. If there is a higher inflow of cash in the business, then the company will not work at a proper level of efficiency, whereas if there is a greater outflow of cash, then the business will be bankrupt in the long run. Thus a company should take professional assistance when choosing a third party for improving the cash flow of a business.
Looking for a financial consultancy that will help you find the correct ratio of working capital to be maintained? JAXA Chartered Accountants can definitely help you and your company in this matter. JAXA is a reputed financial consultancy and has more than 13 years of experience in the market. They also provide an assortment of services that will help a business to reach the heights of success in the United Arab Emirates. To know more about the various services, you can Contact Us. We will be happy to answer all your questions.
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