How Companies Can Generate Profits by Adopting Consistent Cash Flow Mechanisms
By Emmanuel Otori
Businesses fail for many reasons, and one of the reasons for business failure is lack of funds, exchange of money for goods or services provided. There’s no point in having a big product when its market value is zero, sooner or later the competition for market share would shift to those who get enough cash, whether or not they make a profit.
When a company has cash, it is a sign of viability, that it has the capacity to cover its operating costs over time, but that it must go through phases of growth until it is can start adding a certain percentage that can now be set aside as profit, for reinvestment.
The need for cash in the business is so huge that without some ongoing activities, a total collapse could be inevitable.
Why cash flow is important for business sustainability
Primarily, cash flow generates the working capital needed to run the day-to-day affairs of a small business and is therefore considered optimal in the life cycle of a small business. A business may have high sales volumes and no profit, but must be careful about servicing debt, because if it takes a large chunk of that money before the business is shut down, the cash flows cash will dry up and the business will eventually fail. . Efforts should be made to ensure that wholesalers or retailers make payment before delivery of the goods, payment which takes place long after it has been
Profit is what is left over from sales when the expenses of a small business are deducted. The data that constitutes the cost of production of an item must be known because it can be reduced in others to generate the profit that can cover other costs of running the business. A business owner should also be aware of rapid growth, as it comes with unforeseen circumstances that might require corrective action.
These are factors that could hurt profitability
- Operational issues
Operational issues arise when there is an increase in production volume, and this is because the amount of communication, personnel, and energy supply needed to produce a thousand units of a good per day would definitely increase when request is high and the volume increases to a production of 2000 units per day.
- Increase in business spending
It is necessary to avoid expenses that do not have a direct impact on the business at the beginning of its growth. Services such as facilities management, staffing, delivery services, promotions and advertising can be handled in-house by the company instead of making payments well in advance of expenses that should be committed.
- Human resource issues
Workers who are unaware of the organization’s business objective can make serious mistakes that can lead to business loss, whether through direct customer interaction or failure to follow operational procedures. standard, staff not having the motivation to work because their pay could just be a way to stay alive, issues with payroll are potential issues that could hurt productivity.