Cash Flow Management

Understanding Your Cash Flow Management

Before you take any action in your Hillsborough business, it’s essential to have a clear look at your cash flow first. From hiring additional staff to expanding your location, knowing how money enters and leaves your business lets you know more than just how much you have right now, it also gives you a snapshot of the shifts and changes that your business goes through all year long. By knowing how income and spending change during the year, you’ll have a clearer understanding of the amount of cash you’ll have available at any point throughout the year.

Small Business Cash Flow Monitoring in Hillsborough

Cash Flow Management in HillsboroughOur experienced team of accountants can look at your cash flow management as just one of the many financial services we offer small businesses. At C.E. Thorn, CPA, PLLC, we can keep you aware of any changes in how money is moving into or out of your business accounts, giving you the confidence needed to make choices for your business.

By knowing whether you have a positive cash flow due to increased income or a negative cash flow that’s indicative of excess expenditures, you’ll have the clarity you need to plan for your business’s future and make decisions that reflect your financial status.

Profit Vs Cash Flow – Is There a Difference?

It’s important to know that profit and cash flow are not the same thing. Your profit is the amount left over after all the expenses, payroll, and taxes are taken out. Your cash flow is the continued look at how money is moving in and out of your business.

How you track your cash flow gives you a look at trends in your finances and allows you to know vital information, including:

  • When is more money coming into my business. During what time of year is more money going out of my business?
  • Where is money coming from or going to?
  • Why is there more/less in income/expenditures?

By having this information, you are more likely to be successful in pursuing a business loan or line of credit. More importantly, it can help you head off potential cash flow problems by being able to plan well in advance.

Managing Cash Flow for Long-Term Success

While your business will always have money coming in and money going out as you sell goods, collect payments, or pay others for products or services, you will see times when there will be peaks of higher income and peaks of higher expenses. Your Hillsborough business will benefit by knowing when your peaks and valleys are more likely to hit so you can prepare in advance.

To help you prepare, we offer cash flow monitoring and can help you determine the causes and reasons behind increased expenses or decreases in revenue. Whether it’s the effect of seasonal changes or other factors, our team of experienced accountants can help you recognize and fix problems.

Gaps in Yearly Cash Flow

  • Intentional gaps occur when you know you’ll see a reduction  in cash flow. This is often due to a large purchase you make, hiring a new team member, or expanding your footprint.
  • Unavoidable gaps are seasonal trends that can affect your business with an increase or decrease in cash flow,  such as the holiday season, tourism/people leaving for the summer, or even yearly sporting events. Knowing when these short or long gaps are likely to happen helps you plan in advance.
  • Unforseen gaps are events you don’t know will affect you. This can be major, like a natural disaster or smaller, like a vendor raising prices slightly. Even poor cash management can lead to an unforseen gap in your income.

Improve Cash Flow at Your Hillsborough Small Business

Analyzing the cash flow of your business doesn’t have to be a source of stress, and it’s important to know that once you are aware of problems or concerns, you can take steps to fix them. To reduce costs, look at these four areas that are often the source of your biggest expenses or reduction in income.

  • Accounts Receivable – These are payments owed to your business, and if they are late, your incoming money is reduced.
  • Accounts Payable – These are invoices and bills you owe to suppliers, vendors, and others. When you look at your cash flow, you may see places you can cut.
  • Credit Terms – The amount of time you give clients to pay for services can decrease your cash flow, especially when payments are late.
  • Excess Inventory – By over-ordering, you’re tying up your cash instead of putting it to use or saving it during a downturn in income. Instead of having so much on hand, order enough to keep up with demand.

8 Tips for Controlling Your Cash Flow

  1. Know how much cash you have on hand at all times.
  2. Familiarize yourself with your financial history and data so you can create income and expenditure projections.
  3. Know exactly how much cash you need to break even.
  4. Remember to not include your profits when planning cash flow management.
  5. Have money set aside as a safety net to keep your business solvent during downturns in business.
  6. Adjust credit terms as needed to reduce negative cash flow due to customers who owe you payments.
  7. Set a minimum threshold that you need to stay operational and monitor that threshold regularly.
  8. Track your cash each month so you know you have enough in incoming money to meet how much needs to be outgoing.

Contact Us for Experienced Cash Flow Management Support in Hillsborough

At C.E. Thorn, CPA, PLLC, we can help you set a realistic budget and cash flow strategy for your business. To speak with a leading small business accountant, call us today at 919-420-0092 or complete the online contact form today.

small business accountant raleigh