As you may be aware, much has been said about the importance of cash flow optimization for small business. You see it on the television commercials; read it in the papers and it is on the lips of many a small business owner as something that must be done to stay afloat. And you are right to ask how to do it. The purpose of this article is to shed some light on what cashflow optimization is and why you should consider it when running your business.
Before we get into the details, however, I want to make sure you know what cash flow is. Cashflow is the term used to describe the mathematical relationship between the sale of a product or service and the amount of cash that would be paid if that sale were made immediately at the point of sale. For example, consider the following simple cashflow optimization case study. Company A has contracted with Company B to provide the goods and services of a particular range of items.
Company A’s cash flows have always looked fine; their profit last year was good even though they sold more than they bought. However, they have recently started experiencing problems with their order fulfillment. Now Company A realizes that they need to revise the price of their products in order to better compete with Company B. If they raise their price too much, they will lose customers while if they lower their price too much, they will also lose business since they will also have to hire more staff to work at the warehouse in order to complete all of the orders that have come in. They are in essence operating two separate businesses.
What they don’t realize, however, is that they might also be losing business because of the delays that have resulted from their original order fulfillment plan. Company A should take stock in their process and ask themselves whether or not they are using all of their capital resources to run the business efficiently. Is there room for further expansion? Are there other ways of maximizing the flow of goods and services? The answer to these questions can go a long way towards ensuring that your business is successful. The bottom line is that if you maximize your profit potential, your bottom line profits will also increase.
Another great aspect of using a third party source for your order fulfillment is that it will help you reduce your risk. When you handle the logistics of your own small business, you are taking a large financial risk. You could also suffer an audit from your local tax authority if tax payments are regularly delayed.