Cash flow for MSMEs: 5 reasons It is so important

April 3, 2023
Updated on

The importance of cash flow cannot be overstated when running MSMEs. While profits, sales, and expenses are all important metrics to monitor, cash flow is perhaps the most crucial. The problem with focusing solely on sales or profits is that you don’t get a complete picture of your current financial situation. Cash flow monitoring, on the other hand, is an essential part of keeping a business, especially an MSMEs, running smoothly. This is why cash flow is more important to the business strategy than profit in some ways.

Today many MSMEs are opting for cash flow-based borrowing to support their expenses and operations and meet other demands of their business.

Let’s dig a little deeper to understand cash flow based-lending and the reasons behind it.

What is cash flow and how does it affect your business?

The first question you might have is, ‘What exactly is cash flow?’ 

Simply put, cash flow is the flow of money into and out of a business. It is not the same as profit or sales. A positive cash flow indicates that more money is coming into the business than is leaving it. If your cash flow is negative, it means that more money is leaving the business than coming in.

The issue with negative cash flow is that it can make it difficult to cover expenses and keep the business running. As a result, cash flow can make or break a company. It is possible to have relatively high sales figures while still experiencing liquidity problems and a lack of funds.

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Why MSMEs need to maintain cash flow?

1. To pay off short-term debts

Most businesses have some form of debt, and good cash flow is critical for meeting repayment needs. A healthy cash flow ensures that your company can pay its suppliers and employees on time. Therefore, cash flow is critical in maintaining positive business relationships.

2. To have more bargaining power

Having enough cash on hand to make purchases puts you in a much better position. You may even be able to negotiate better trade terms with suppliers if you can pay in cash, without requiring credit.

3. To make the most of new opportunities

When it comes time to expand your business or invest in new ventures, you must have a positive cash flow. For example, if you want to start a new online store, you would struggle if you didn’t have enough cash.

4. For better planning and decision-making

A consistent flow of cash not only helps you build good cash reserves but also makes planning easier. For example, any future expansion plans will be contingent on the cash flow of your company. It also means you’ll have more time to make long-term strategic decisions that will help the company grow in the future.

5. Recognize where your money is being spent

Manage your cash flow effectively, and you’ll gain a better understanding of where your money is going, which isn’t shown on a profit and loss statement. It’s critical to understand where your money is going and why. 

It is not always easy to see expenditures in black and white, which is why it is critical to effectively manage your cash flow. You may be able to identify areas of the business where you can save money.

Cash flow-based lending can be the answer

In recent years, there has been a growing consumer preference for cash flow-based loans. The flexibility provided by cash flow based lending systems meets the needs of small-scale entrepreneurs and those who work in seasonal jobs and businesses as well. Small businesses, in particular, are shifting away from traditional financial institutions towards other lending options. 

At Kinara Capital, we provide hassle-free and quick loans to MSMEs, who would want to focus on future cash projections rather than current investments. Furthermore, MSMEs require fast business loans to meet their cash flow requirements, and we make sure that they meet their needs through our 1-day loan disbursements.

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