Carrboro Cash Flow Management

Carrboro accountant

Why is Cash Flow Important?

Cash flow refers to the amount of money going into and coming out of your business. It helps you evaluate the amount of cash that is available at any given time and provides projections of potential changes in cash flow.

Monitoring Your Carrboro Business’s Cash Flow

Keeping up-to-date with changes in cash flow is critical to the success of small to midsize businesses and can help you take control of your company’s financial standing.

Always know which way your cash is flowing:

  • Positive flow – cash coming in
  • Negative flow – cash going out, or expenditures

Profit vs Cash Flow

It is important to remember that cash flow is NOT the same as profit.

Profit balances your income, expenses, and tax calculations. Cash flow focuses on the daily movement of cash flowing in and out of the business and provides insight into the trends of money movement.

When you manage your cash flow, you’ll be able to answer questions like:

  • When is the money coming in/going out?
  • Where is the money coming from/going to?
  • Why is there an influx or reduction in cash flow?

Having accurate cash flow figures will help your business when requesting loans, credit approval, and help your business avoid having a cash-related crisis in the future.

Improving Cash Flow for Your Carrboro Business

To increase cash flow, take a look at the following areas of your business:

  • Accounts receivable – payments your business is owed. Delayed or delinquent payments reduce the business’s cash flow.
  • Accounts Payable – amounts owed to your suppliers. Owing too much decreases the cash flow of a Carrboro small business.
  • Credit Terms – the time limits you give clients to pay for purchases. The flow of cash is decreased when payments aren’t received on time.
  • Inventory – excessive inventory ties up cash that could be allocated elsewhere or put aside as a safety net. Be conservative when ordering inventory, unless you are sure you can sell it.

Good Cash Flow Management Leads to Long Term Success

Managing your cash flow helps you see and plan for peaks and valleys in your business. There are a lot of reasons businesses ebb and flow, from weather to the change in seasons to the health of the economy. Properly managing your cash flow will help reduce the impact of a valley where you have limited cash availability.

Different Gaps in the Annual Cash Flow

Intentional Gaps are purposefully reduced cash flow that results from large purchases like inventory, equipment, hiring, or expansion of the business (funds for construction/renovation, taxes, permits, etc.)
Unavoidable Gaps refer to seasonal trends in businesses like construction, tourist attractions, hotels, etc. An unavoidable gap may also refer to logistical availability and many other factors contribute to an unavoidable flow. Proper cash flow management can help your business “float” through the valley to the next peak.
Unforeseen Gaps are unplanned, sometimes unavoidable events like natural disasters, poor supply from wholesalers, and bad cash management that lead to an unplanned decrease in cash flow.

8 Tips for Controlling Your Cash Flow

  1. Always know your current cash balance.
  2. Project your future cash flows by reviewing your business’s financial history & data.
  3. Know what your break even point is, the amount you need to bring in that is equal to your expenditures.
  4. Do not focus on profit when implementing a cash flow management system.
  5. Always keep a cash reserve on hand to help prevent stressful situations when business is slow.
  6. Reduce your business’s negative cash flow by collecting client/customer payments quickly. This may require adjusting your credit limits.
  7. Monitor your cash flow threshold and set a minimum limit to be aware of potential shortcomings.
  8. Track your cash every month so you can properly manage cash flow to meet needs.

Contact an Experienced Cash Flow Management CPA in Carrboro

At C.E. Thorn, CPA, PLLC, our small business accounting team can help create a budget for your business and manage your cash flow by developing a cash flow strategy and reviewing and revising it as needed.

To speak with the best small business accountant for Carrboro businesses, call 919-420-0092 or complete the online contact form today.

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