Knowing your cash flow will allow your company to estimate the total amount of cash on hand, while also providing projections of potential changes in cash to evaluate what amount will be available at any given time.
Cash Flow is critical to the success or failure of small to mid size businesses. Properly managing your company’s cash flow will help your company with investing and helps to prevent the need to borrow funds. Follow the trail of where your money is being spent, to seize 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 movement of cash moving to and from the business. It also provides insight to 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 your Durham small businesses should account for are peaks and valleys in cash flow. Properly managing your cash flow reduces the number of periods with limited cash availability. Looking deeper into financial analysis will find the potential reasons or times the company may experience a reduced cash flow, such as seasonal patterns, weather conditions, etc. 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 company’s 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.