Cash Flow Management for Raleigh Small Businesses

What is Cash Flow Management?raleigh cash flow management

The management and analysis of a company’s flow of cash.

Management allows a company to estimate the total amount of cash the business will have on hand, while projecting potential inflows/outflows of cash to evaluate if a negative or surplus of funds is possible.

Why is Monitoring Your Small Business Cash Flow Important?

Cash Flow is critical to the success or failure of small to mid size businesses. Good cash management helps companies with investing and helps to prevent the need to borrow funds. Proper management will help you determine where your money is spent, and allow you to take control of your financial standing.

  • Positive Flow – Money coming in
  • Negative Flow – Expenses
  • Profit vs Cash Flow

Cash flow is not the same as profit. While profit is concerned with income, expenses and tax calculations. Cash flow is concerned on a daily basis of cash moving to and from the business and following the trends of money movement.

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

Accurate cash flow will help your business when requesting loans, credit approval, and help with techniques to speed up cash payments/collection. Your business will avoid cash related crisis in the short and long term.

How to Improve Flow

Examine these areas to increase flow:

  • Accounts receivable – sales payments that have not been collected. Delayed payments will reduce the business’s cash flow.
  • Credit Terms – time limits for clients to pay for purchases. Bills paid slowly decrease the flow of cash.
  • Inventory – excessive inventory takes up cash that could be allocated elsewhere. Don’t overdo it. Keep only what you can sell.
  • Accounts Payable – amounts owed to suppliers. Too much owed increases the negative cash flow of a Raleigh small business.

Prepare for Long Term Success with an Analysis of Cash Flow

An important factor that all Raleigh small businesses account for is the spike or reduction of cash flow. Properly managing your cash flow will reduce the number of low cash flow periods. The analysis will find the potential reasons or times for the company experience a reduced cash flow. It is important to recognize problematic expenditures to plan, recognize and account for problems and repair them.

Gaps in the Annual Cash Flow

Intentional Gaps – Purposefully reduced cash flow can result from purchases of inventory, expansion of the business (funds for construction/renovation, taxes, permits, etc.), taking advantage of unexpected business opportunities/sales/discounts.

Unavoidable Gaps – Contractors, tourist boutiques, hotels, etc. commonly experience unavoidable gaps in the business cash flow. Seasonal trends, logistical availability and many other factors contribute to an unavoidable flow. Businesses often see a major spike in peak season, and a lull in off season. Proper cash flow management can help your business “float” until the next peak flow period.

Unforeseen Gaps – Natural disasters, poor supply from wholesalers, and bad cash management can lead to an unplanned decrease in a business cash flow.

Getting Control of Cash Flow

8 tips for a better small business cash flow:

  1. Know your current cash balance
  2. What is your future balance projection? Project your future cash flows by reviewing history & financial data.
  3. Know where your break even point is
  4. Do not focus on Profit when implementing a cash flow management system
  5. Keep cash on hand. Cash reserves can help prevent stressful situations when business is slow.
  6. Get customer payments quickly. Reduce your businesses negative cash flow.
  7. Monitor your cash flow threshold. Set a minimum limit to be aware of potential shortcomings.
  8. Track your cash every month to properly manage cash flow to meet needs. This will help prepare the business to make good business decisions.

Contact an Experienced Cash Flow Management Team!

At C.E. Thorn, CPA, PLLC, our small business accounting team will help you budget your business by focusing on income and helping to decrease your tax payment. We can help you develop your cash flow strategy by reviewing your current strategy and revising as needed. We can help you determine where you are in the cash flow process to help you determine where your increases come from and help you prepare for down periods.

You can speak with the best small business accountant in Raleigh by calling 919-420-0092 or completing the online contact form today.

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