What is Cash Flow and Why is it important for SMEs

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What is Cash Flow?

Cash flow is the net amount of cash and cash equivalents that enter and leave a company during a specific time period. Whether your cash flow is made up of owned capital or borrowed monies, a tally will indicate if the business is in debt or not. No business can afford to ignore its cash flow. Practically speaking, cash flow is the heart of your business. So why is cash flow important for SMEs?

Why is Cash Flow important for SMEs?

If you’re considering starting a business or have just started one, you’ll need to set aside some money to get everything set up. 

You will likely have to pay for new equipment, a website, overhead costs, and employee salary. It is important that there are no unnecessary expenses in your business. 

Cash flow management enables SMEs to accurately set goals, priorities, and spending. SMEs often have limited resources or budgets available to them. As a business owner, it is necessary to learn how to control and manage your cash flow in order to protect your capital.

How to maintain positive Cash Flow?

Cash flow is the lifeblood of your business; Positive cash flow indicates that your company has the potential to grow. 

A business’s cash flow is positive if it brings in more money than it spends. In other words, a positive cash flow indicates that more money is coming in than going out, which is necessary for a business to maintain long-term growth.

It takes skill to adjust your business against a cash flow shortage, but it’s not impossible. Here are some tips to help for when you find yourself strapped for cash.

1. Cut your costs

The best strategy to deal with a cash flow shortage is to keep track of your spending. Instead of adding up your costs, categorise your business spends to determine which area of spending is consuming the most money.

Why was there a 2x increase in food expenses? How come there was an unusual surge of payroll expenses this month as compared to the past three? Determining these expenses will then guide you in developing a bulletproof strategy in managing your cash flow.

2. Increase your prices

Once your business has established a stable income and a steady stream of repeat customers, consider to start increasing your prices.

Moreover, you can use this opportunity to offer early bird discounts, or if you’re running an online business, you can encourage customers to sign up to a waitlist, pre-order new goods, and pay in advance to secure more cash flow in your books.

3. Optimise your stock

Having excessive stock on hand or purchasing too much inventory in advance can put an unnecessary dent on your available cash flow. One way to manage that is to keep all your goods as lean as possible, ensuring you have just enough supply to keep your business running for the immediate short-term, and restocking at intervals. 

Renting machinery or equipment instead of purchasing them is also a great way to control your cash flow. With much more predictable prices, leased equipment won’t come with any unexpected maintenance fees and high up-front costs, which lets you avoid negative cash flow.

4. Apply to Small Business Loans

Alternatively, working capital loans are an option if your business needs additional financing.

For those running a tight ship, you can also explore these financing options to take an SME loan in Singapore:

  • Elevate: Credit Line and add-on Virtual Card for expense management
  • Invoice Financing

We know how challenging it is for businesses to sustain a consistent cash flow. With Funding Societies, you can now scroll through small business loan options in Singapore to get the financing you need to maintain a positive cash flow.

SME - Apply Now!


Disclaimer: Elevate is not a credit card product. Elevate is a combination of a credit line facility offered by FS Capital Pte Ltd, with the convenience of quick and easy utilisation at any Mastercard accepted store or merchant via a virtual card separately powered by Mastercard and Matchmove. For more information, please refer to the Product Disclosure Sheet and Facility Terms and Conditions. Brought to you by FS Capital Pte. Ltd.

Invoice Financing is a product of Funding Societies Pte. Ltd. 

The information provided to you in this blog post is intended only for general information purposes only and does not constitute legal or other professional advice on any subject matter. The materials and the information provided are not intended to be and do not constitute an advertisement or solicitation. In no event will Funding Societies be liable to any party for any direct, indirect, incidental, special, consequential or punitive damages for use of such information by you or any unauthorised third party.

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