Managing cash flow is central to maintaining a healthy business. For your company to prosper, you need to have your eye on more than just profit. You need to be able to effectively balance the books, with complete visibility over everything, from day-to-day expenditure to payroll. Even businesses with the most straightforward operations can struggle to fulfil effective cash flow management.
Manufacturers know how difficult it is to continuously meet the expectations of customers, especially when using systems that are perhaps outdated. This is whilst also trying to ensure that orders are completed on time, supply lines remain open, and machinery is well maintained.
Learning how to enhance cash flow management in a manufacturing organisation can be the difference between an organisation that struggles and one that thrives. In simple terms, cash flow management is the process of tracking how much money comes in and out of your manufacturing business (with the goal always being to ensure that the former is greater than the latter). A positive cash flow means that more money is coming into your business than is going out, which will inevitably lead to greater profitability.
However, just because your business is profitable doesn’t necessarily mean its finances are healthy. Good cash flow management is a forward-looking discipline that ensures your business always has the cash on hand to cover all costs and variables. Getting a good view of this (of your ‘cash flow risk’) will enable better planning and help to preserve your all-important relationships with suppliers and customers.
How to improve cash flow management in manufacturing
Managing cash flow is never quite as simple as it first appears. In manufacturing in particular, business isn’t simply a case of goods in versus goods out. Instead, business tends to work based on cycles, from design and development, to the purchase of raw materials, to the eventual shipment of products.
And that’s not even considering the fact that most payments will be made on 30, 60, or even 90-day terms. This can have a material impact on your company’s working capital, and good cash flow management can help you mitigate any potential risk of downtime.
Good cash flow practices are crucial to manufacturing in several ways, including:
Better decision making through forecasting
Accurate cash flow statements will allow you to understand precisely how much working capital you have at any given time, allowing you to weigh up the true affordability of substantial investments. You might think your business is in a strong position if it’s profitable, but a cash flow statement might reveal short-term vulnerabilities that could spell disaster if you decide to spend money on something you can’t really afford.
Surprisingly, not many manufacturing businesses have an accurate understanding of where they’re spending money. With complex supply chains and lots of moving financial parts, it’s important to have a real-time cash flow overview of your current situation, that a simple profit and loss sheet at the end of the quarter can’t provide.
Cash flow problems can quickly spiral out of control, resulting in unpaid invoices and frustrated suppliers. This can hurt your business in the long term by damaging its reputation and relationships. A good cash flow management platform will allow you to schedule invoices and plan for payments well in advance.
Building sustainable development cycles
From the gathering of raw materials from suppliers, to building, finishing, and shipping the product, tracing cash flow throughout these steps is crucial to making sure your product development cycle is sustainable in the long term.
Choosing the right cash flow management software
Manufacturing software solutions provide everything a business needs to master the following:
- Accounting - Spend less time stressing over the numbers and more time improving your business.
- Production - Digitise your processes and wave goodbye to spreadsheets, whiteboards and paper.
- Contact management - Maintain strong relationships with customers and build dedicated sales pipelines.
- E-Commerce - Automate and maximise online sales, ensuring pricing and inventory are synchronised in real-time.
- Stock control – Gain a clear picture of the inventory you have in storage and calculate demand to maintain optimal levels.
At Advanced, our goal is to remove the headaches that usually come with drawn-out manual processes, allowing you to increase production and make more proactive business decisions. To register an interest, or to simply learn more, take a closer look at our Manufacturing software solutions today.