In this post we address why Cash Flow is important to determine the cost of revenue, and how the profit and loss statement doesn’t reflect real time business health.
All Sales Are Not Created Equal
For the ease of understanding, let us consider a hypothetical small business scenario to establish our case. A hygiene service provider offers to clean corporate office spaces and invoices it’s two clients Company A and Company B, one with pay terms of 30 days, and the other with 60 days respectively.
The service provider bills both the clients for Rs. 100,000 each. The Profit and Loss statement accounts for both invoices and reflects steady growth in business.
Every industry/sector follow their own pay cycles stifling small businesses’ Cash Flow.
Cash Infusion Options
Now that we have established the need and importance of Cash Flow, let us look into ways businesses can raise money to meet immediate commitments.
- More Investment: You may reach out to potential investors and dilute some equity for cash infusion. The point is that you would have to trade your equity for cash.
- Traditional/Bank Loans: A traditional loan appears to be a better option, when compared to trading your equity. However, bank loans are time consuming and loans are typically approved against collaterals only. If you are a service based business, chances are that you may not possess substantial assets to pledge.
- Peer to Peer Lending/Bill discounting: As a business, you can raise quick loans against pending invoices, within a matter of 7 days. This concept of Bill Discounting is offered at competitive interest rates and no hidden service charges. The process of application, assessment, disbursement, and repayment takes place online, seamlessly.