Cash Flows in your Small Business

Cash flow definition

Cash flow is the amount of money coming into and going out of a company’s accounts, as reported in earnings announcements. It can refer to a single project or the entire business.

Some traders use cash flow as a means of judging a business’s financial foundations. If there is a large amount of cash coming in, there is more available to reinvest in the business. Cash flow can be easier to compare between companies as it isn’t subject to accounting rules.

Very Important!

Cash flow isn’t necessarily a sign that a company is profitable, but does indicate its liquidity. Total cash flow is calculated by deducting the total costs and adding incomes over a period of time, to give the change in cash balance. There are many other types of cash flow, though, depending on which aspect of a business’s cash flow is being calculated.

Even profitable companies can fail if operating activities do not generate enough cash to stay liquid. This can happen if profits are tied up in accounts receivable and inventory, or if a company spends too much on capital expenditure. Stakeholders such as Investors and creditors, therefore, want to know if the company has enough cash and cash-equivalents to settle short-term debt or liabilities. To see if a company can meet its current liabilities with the cash it generates from operations, analysts look at debt service coverage ratios.

Like the popular saying, “Cash is the Key” in any business. When cash flow is going well for a small business, it is a good indication for a business growth and flow in business processes. If otherwise, it is a common gesture of chaos incorporated in business.

There are basic cash flow tips that enable small business maintain the best business touch;

Avoid Trade;- Just Stay Away from it!

Small business often use it but its devastating to small business because no cash is being exchanged between the two parties. Additionally, you have to spend cash to provide your services, such as providing inventory, pay employees, pay rent, and more importantly, you have to pay taxes. Positive cash flow indicates that a company’s liquid assets are increasing, enabling it to settle debts, reinvest in its business, return money to shareholders, pay expenses and provide a buffer against future financial challenges. Companies with strong financial flexibility can take advantage of profitable investments. They also fare better in downturns, by avoiding the costs of financial distress.

Account Receivables Management;- Receive as Fast as Possible

This means you want cash to get back into the business from your customers or your clients as quickly as possible. You may want to avoid being the ‘Bank’, concentrate in running the business and let someone else lend the money. That is why some experts recommend business accept credit cards which is considered well worth it even with the discounts, to maintain positive cash flows and also cut down on receivables.

Develop a discount program to encourage quick payments, collecting cash owed to you as fast as possible. Normal payment terms allow a 30-day period for remittance after the receipt of an invoice, with a 2% discount if paid within the first 10 days. You can offer more, less, or no discount for payment, depending upon your needs and your customers’ previous pay habits.

Account Payables Management;- Pay as Slowly as Possible

Good account payable will ensure an ethical way of maintaining your cash flows. An invoice returns of Net 30 terms should always be fully taken and made a better use of, to leave money in your Bank as long as possible to service short term obligations of your business. Also consider monthly serviced credit cards for immediate request for payment, which gives you additional 30 days to pay off and leave cash for your business.

Continuing Yours Business Process

Those business process that lead to generating money in your business should be maintained consistently and continually flowing. This will create continuous flow of cash into your business and avoid those chaos moments in business

For more Assessment of your Cash flow needs and management; and other Tips

Reach Us or Outsource Your Work With Us. If Accounting works are bothering you, then it’s time you outsourced your bookkeeping and accounting requirements to us. Hire us for all your needs and this will help you get more time to concentrate on other core activities of your business. With team of professionals to help.

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