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.
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.
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.
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.
Examine these areas to increase 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.
8 tips for a better small business cash flow:
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.