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Finance

5 Effective Ways To Maintain A Positive Cash Flow

In simple terms, cash flow is the amount of cash and/or cash-equivalents moving in and out of your business. To have a positive cash flow, the amount of money your business receives in a particular period (let’s say a month) needs to exceed the amount of money paid out. This liquidity is what enables you to pay expenses, settle debts, pay your shareholders, as well as grow the business by reinvesting.

Here are five effective ways to ensure you maintain a positive cash flow (see CreditWorks):

  1. Know your actual costs and expenses

One of the main reasons why many entrepreneurs find it difficult to maintain a positive cash flow is that they do not keep track of costs and the due dates for bills and other expenses. When you understand what your actual costs are, you’ll be able to calculate the breakeven point for the goods or services you sell. This way you’ll ensure that you charge enough to cover your costs and make a profit.

  1. Get your debtors to pay early

Encourage your clients to pay early and delay paying your creditors for as long as possible – without incurring interest or late fees, of course. Send out invoices to your clients immediately a product is delivered or work is completed to give them adequate time to plan for payment. You can offer small discounts (of about 3-5%) to customers who clear their accounts within a few days of receiving their bill.

Send friendly reminders to clients who are late on their payments and advise them of any late fees and interest charges that they will incur for late payment. You could also waive penalties for clients who have held the debt for too long to encourage them to pay up.

  1. Build your business credit

Manage your debts well to ensure your business has a good business credit. This will ensure that you can get big bank loans at affordable rates to boost your cash flow when the going gets tough – and this is bound to happen every once in a while.

Good business credit will also ensure that you get favourable credit terms from your suppliers further boosting your cash flow.

  1. Check your customer’s business credit

Before selling to a customer on credit, make sure you run a credit check on their business to ensure that they are healthy financially and have a high likelihood of paying you on time. Don’t just perform credit checks on new customers but on long-term customers as well as the financial situation of a business can change within a very short time.

  1. Create a cushion

Keep some reserves when things are good for that unforeseen rainy day. Maintain a cash reserve of at least 20% of revenues to protect and insulate your business during sudden revenue downturns and slower seasons. This will ensure that you are able to cover your costs and expenses for some time even if cash is not coming in as fast as it used to.

One of the most common (and catastrophic) mistakes most entrepreneurs make is focusing most of their attention on sales and profits at the expense of cash flow. Although they are both very important for a business to thrive, it is a positive cash flow that will ensure your doors remain open and your business does not go bankrupt in the short-term.

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Finance

Accumulating Technical Debt Can Affect Your Company

Tech debt is bound to happen when you design a code and this silent killer is also bound to accumulate and strangulate your company slowly, but surely. Few companies take deliberate tech debts thinking it to be good for the business but others try to ignore. This ignorance is even more dangerous for the company as just like any other financial debt, tech debt also needs to be repaid on time to avoid the accumulation of interest. Otherwise, time will come when the code will be full of bugs, and you will not know where to start from to refactor it and make it usable once again.

Reasons Of Tech Debt

The reasons for tech debt existence may be varied, but whatever it is, you should identify it at the earliest so that you can implement the best step to get all the bugs fixed and enjoy the profit of a fully functional code base. You may have to choose a wrong stack sometimes to keep up with the constant pressure from the market as well as from the stakeholders. Such hasty decision may lead to the choice of wrong technology which you may not have the required time in the future to go back to rectify it. Such problems will manifest themselves in several ways in the future.

Problems With Functioning

Wrong and faulty codebase will not only have problems in functioning, but it will also affect in its extensibility, scalability, convoluted schema, long enhancement in cycle times, production outages and much more. Tech debt, once started, does not fix all by itself and to worsen the situation, even more, it accrues interest as time goes on. Such interest accrual affects the productivity, performance, morale, quality, expenses and several other issues. To overcome it all, you along with your team will need to manage your code base regularly so that the quality of the deliverables is always high.

Not All Are Bad

Not all tech debts are bad and need to be remediated. There may be situations in which a little and manageable debt is good for the business. Such manageable tech debt enables fair competition among different teams, regular maintenance of the code and maximized profit from the code base. But for all this, it is necessary that you allocate specific time to the teams to identify, test and remediate a code base so that any future stagnation can be prevented.

Consequences Of It

When you do not allocate spare time for the development teams, then there will be no discussions about tech debt, its importance, and effects. You will also have no control over the codes once released, and often codes will come back after a short time at regular intervals. This will not only promote critical bugs in the code, but the teams will also lose focus on their job and will be happy to design codes with unfair and shortcut methods just to meet the deadlines. Therefore, just like you repay your financial debt with the best credit card consolidation loans, you should also take similar measures to manage tech debt.