How Companies Can Generate Profits by Adopting Consistent Cash Flow Mechanisms

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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 is no point in having a great product when its market value is zero, sooner or later the competition for market share would shift to those who get enough cash whether they are making a profit or not.

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 businesses is so huge that without certain activities running, 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 why it is 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 a payment before delivering the goods, a payment that comes long after it has been

Profit

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

1. Operational issues

Operational issues arise when there is an increase in production volume, and that is because the amount of communication, personnel, and energy supply that was required to produce a thousand units of a good per day would certainly increase when the demand is high and the volume increases to a production of 2000 units per day.

2. Increased 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 engaged.

3. 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 salary might just be a way to stay alive, issues with payroll are potential issues that could hurt productivity.

About the Author:

Emmanuel Otori has over 9 years of experience working with 100 start-ups and SMEs across Nigeria. He has worked on the World Bank’s Growth and Jobs (GEM) Project, GiZ, Consulted for Abuja Enterprise Agency, Novustack, Splitspot and NITDA companies. He is the Managing Director of Abuja Data School.

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