Do the words ‘cash flow’ strike terror deep within you? If you are in business, you know that cash is king. If you run out of cash, you basically are out of business. Therefore it’s a smart idea to pay attention to your cash and your cash flow. Using financial tools such as software can help ensure you manage your cash flow well. Even a profitable business can go out of business if they don’t manage their cash flow well. No cash flow=no business. Here are some tips on cash flow to keep in mind. Consider these points for managing your cash flow better.
Profit or loss does not equal cash flow. This is because profit and loss are only one contributor to cash flow, and there are other equally important factors to consider: inventory management, accounts receivable, accounts payable, capital purchases, loans and debt payments, and timing. Considering profit and loss equivalent to cash flow is a mistake, since it does not take into account other important factors.
Software programs can help manage your cash flow. Good accounting software will let you budget income & expenses and will in exchange budget your cash flow. This makes it easier to make wise spending decisions, and not to overspend. After all, it’s hard to argue with the facts when they are sitting right there in front of you! Cash flow reports can also be a great help. These reports show information about the cash intakes and outflows for your business for the selected date range.
Good cash flow budgeting can save you money. Creating and sticking to a budget can help you in many different ways. Not only can you make better and more profitable decisions, but you can also pay less in late fees, attain discounts for paying early, and you can even lessen or eliminate your need for short term loans, sparing you the cost of paying interest. The flip side of this is also true: if you don’t analyze and plan your cash flow, it will cost you!
Use budgeting and financial analysis tools to do “what if” analysis. Using your financial and budgeting software to help you run ‘what-if’ scenarios can be helpful for your bottom line, and can therefore help improve your cash flow. For example, if I purchase an updated piece of equipment, what will the short and long term financial affects be? Using ‘what-if’ analysis can help keep your expenses in check, which can in turn improve your cash flow.
Pay close attention to your cash flow, use every tool at your disposal to help you, and you will be on the road to better cash flow and a flourishing business.