Everything you need to know about Cash Flow

Cash flow

What is cash flow?

Cash flow is the movement of money through your business, physically or digitally. Net cash flow is the amount of cash or equivalent transferred in and out of your business. It’s crucial for business owners to know and understand their cash flow; this allows businesses to make plans and assess where their business is going.

Cash flow vs Profit

Cash flow is the money that flows in and out of business; Profit is the amount of money businesses receive from sales after expenditures have been subtracted. Cash flow doesn’t focus on the money businesses owe but, on the comings, and goings in the business. As a result, cash flow provides businesses with an accurate representation of the business’s financial potential, whereas Profit shows an instant view of the business’s success.

What is a cash flow forecast?

A cash flow forecast is a document that outlines what a business can expect to enter and exit the business over a set period.

Why is cash flow necessary to a small business?

Cash flow forecasting enables business owners to see what’s to come for their business and plan regarding this. It also allows for well-informed business decisions. Cash flow forecasting provides businesses with answers to core questions, for example, “Can we expand in that area? Can we afford to hire that person?”. Cash flow ensures businesses have the funds needed to ensure continuous growth.

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How to stay on top of your businesses cash flow

Monitor your cash flow regularly

Businesses can achieve this much more quickly using online accounting software like Xero. This software makes it easier to reconcile information like accounts and generate reports.

Cut costs

Businesses should focus on recurring monthly, quarterly, and annual expenditures; ask yourself if your business can cut back on utilities or if you are spending money on unused or needed services.

Get a business line of credit before you depend on one

When businesses get a business line of credit, it provides security and insurance against any cash flow problems. Businesses may get a line of credit for a percentage of the accounts receivable or inventory, which can then be used as collateral.

Lease equipment instead of buying

Opting for leasing business necessities like vehicles, computers etc., gives businesses access to the latest features and updates these items offer without paying extra fees. This method suits businesses as they can still add these expenses to their business taxes.

Stay on top of invoicing

Businesses should get into the habit of waiting until the job is completed or the product is delivered before sending out invoices. In most cases, doing this allows businesses to find the specific person, job title or address to send the invoice out to prevent the invoice from getting lost. It’s also advisable to ensure invoices are straightforward to read; however, businesses should take the faster and more efficient route of emailing invoices rather than physically sending them.

Ask for deposits or partial payments on large orders or long-term contracts

When businesses charge this way, it allows for them to generate enough cash to finance any materials or staff needed to finish the job.

Delay payments to your supplier

Unless there is a need to pay early, businesses should understand how late you can pay your supplier while avoiding a late fee or sabotaging the relationship between supplier and business.?