When managing your business effectively, it is important to keep a close eye on your cash flow. This will allow you to track your income and outgoings and plan for both the short term and long term of your business. If you are looking to grow your business, you will want to ensure that the company’s cash flow is positive once you have deducted all the outgoings for the period. Whether you run a small business or you have owned a large company for many years, cash flow management is equally important, but why is this the case? Allow our accounting experts to talk you through the importance of managing cash flow effectively.
What is cash flow?
Cash flow is calculated by subtracting the outgoings of a business from the income, allowing you to produce a cash flow statement for that specific period. Income refers to the amount received from customers for your goods or services. Cash outflows include everything such as taxes, operational costs, the amount you pay suppliers and employees. Positive cash flow means that your liquid assets are increasing, and business owners will have excess cash at their disposal.
Why is cash flow management important?
Giving you a clear picture
Effective cash flow management will allow you to see clearly where your outgoings are going every month, and where the most cash is earned for your business. You can identify any unnecessary outgoings and cut these out to streamline your costs or focus more on areas that are proving beneficial in order to increase your incomings. This could give you a healthy cash flow next time you come to measure this.
Planning for the future
Keeping a close eye on your business’s finances and producing a cash flow statement for a specific period will help you to plan more effectively. You will be aware of the amount of cash you have at a specific time, so you can decide to store this away if you encounter cash flow problems in the future or if you are due to pay any accounts receivable. Alternatively, you could reinvest this in the business, expanding operations and facilitating growth.
Maintain good relationships with stakeholders
Effective cash flow management can benefit the relationships you have with suppliers, customers, and anyone else with an interest in your business. You will have agreed payment terms in advance with many of these stakeholders so, whether customers owe you or you have outstanding payments to be made to suppliers, managing your cash flow will allow you to plan accordingly for these incomings and outgoings. This will ensure that the payment process is managed effectively, no deadlines are missed, and good terms are maintained with all these stakeholders.
Here at Omer & Company, our expert accountants can carry out accurate bookkeeping for your business so that you can monitor your cash flow closely and effectively plan to grow your business in the future. We offer complete accounting services that can take as much or as little control of your business’s finances as you want. If you would like to find out more about how we can help your business, give us a call on 020 8850 0700 or send an email to firstname.lastname@example.org.