Keeping your cash flow consistent is a necessary but challenging task. With a healthy cash flow, you can pay your employees and operating costs in a timely manner. In this process, you also gain the reputation of being dependable. For all these reasons, it’s evident that cash flow management is critical. For further information, here is a guide for business owners interested in mastering cash flow management.
Table of Contents
Understand What Cash Flow Means
Cash flow considers the amount of money coming in and leaving your business. You may have heard “accounts receivable” and “accounts payable,” which reflect these movements. The end goal is to achieve a consistent cash flow, whereby more money goes into the business than out.
Using Cash Management Software
You must consistently report the money going in and out across all business areas, including supplier purchases; this is a lot for one person (and even a team of employees) to keep track of, which is why automating your finances through cash flow management software is a total game-changer.
With software like Intuit Accountants software, you can assess data for insights that prompt swift action based on real-time analytics. You also don’t have to remember all the accounts on your own, with software tracking everything on its own.
How To Create A Positive Cash Flow
The idea of harvesting more cash than is being paid out sounds like a good deal, but it’s easier said than done. Establishing a positive cash flow requires strict bookkeeping and recordkeeping of inventory management, as well as all statements and bills associated with customer sales.
Use Simple Formulas To Gauge Where You Are
An essential step in managing your cash flow is to know your numbers.
Specifically, lean on simple formulas that give you an idea of where you reside financially. Start by calculating profit.
To calculate profit, use the following formula:
Subtract your expenses from your revenue.
- If the remaining equates to what you need to pay in expenses, you’re not profiting; you’re just getting by.
- However, you’re losing money if your revenue is below what you need to pay expenses.
Ideally, you want your revenue to surpass the total costs of expenses. When you achieve this, the amount of money you have ahead of expenses is your profit.
Create A Cash Flow Statement
Your cash flow statement is a forecast of accurate cash flow assumptions. You want to make financial predictions to identify potential issues before they have time to surface.
To create your forecast, list predictions related to potential price increases (such as raw materials) and the amounts you will charge your customers in response.
You can identify the business projection and its direction with your assumptions listed. Brainstorm reasons for these occurrences, such as the trading environment, the season, etc.
Review Your Cash Flow Statement
- Review your cash flow statement and note where you regard inflow vs. outflow of cash; this way, you can prioritize bills and other pressing expenses.
- While your cash flow forecast is never truly finished, you need to update it consistently to accurately represent the financial standing of your company.
- Be sure to correct any predictions you made while creating your cash flow forecast, so you have a realistic grasp of the condition of your finances.
Keep Tabs On Your Accounts For The Best Outcomes
Keeping tabs on your cash flow will give you the advantage of staying ahead and being resilient. The meticulousness in reviewing and updating your cash flow forecast and applying additional measures to monitor your accounts will dictate how successful you are at reducing risk and obtaining the money you need.
