“The term cash flow refers to the net amount of cash and cash equivalents being transferred in and out of a company. Cash received represents inflows, while money spent represents outflows.”
Amal from Accountingpreneur said “To business owners, keeping an eye on your cash and having proper cash flow management protocols is the cornerstone of running a profitable business.” Everything from how you make business decisions to paying suppliers and setting goals (both short-term and long-term) relies on healthy cash flow. But why exactly is cash flow management so important to a small business?
Understand your Monthly Expenditures
Cash flow management puts a spotlight on how much of your money is coming and going, but more importantly, where it is going. By understanding your monthly expenditures, you can see if there are discrepancies and adjust when necessary.
Allows You to Maximize Opportunities
By knowing exactly how much cash you have on hand, you can make better investment decisions when opportunities present themselves. With a thorough understanding of your cash position, the decision of whether to jump on an opportunity or wait for a better time becomes simpler to make.
Properly Budget for Taxes
Taxes need to be accountedand planned for therefore a robust cash flow management system and cash flow forecasting will help you prepare for tax time.
Manage Bill Payment
Many vendors and suppliers do not allow for credit and require cash to purchase products upfront. This is another reason that cash flow is important. When a supplier demands payment for services or goods delivered, you may need to pay cash and without good business cash flow, you may be left without the ability to pay.
Part of earning better rates with a bank and earning credit is by having enough cash to pay your bills early or on time, every time. Earning credit and having higher degrees of credit control will allow you to leverage opportunities and grow in ways that you may not have had the opportunity to do otherwise.
Leverage and Bargaining Power
Knowing your cash flow position will give you bargaining power in negotiations because you know exactly what you have to work with. The term “Cash is King” exists because the power of cash is as relevant to business owners today as it ever has been.
Recession and Downturn Protection
Being completely reliant on credit, having poor cash flow or cash flow issues leave you vulnerable to downturn or recessionary pressures. Positive cash flow will help insulate you from the shock that comes from these outside forces.
Forecast and Plan for Growth
Cash flow management gives you the insight necessary for future planning and growth. You can use your past cash flow statements, in conjunction with other aspects of your business, to model your future growth with a great degree of accuracy.
Reputation and Relationship Management
Your reputation and your relationships are the true currency of business. You keep those in place by being able to keep your commitments and pay your bills on time. Keeping business cashflow at the forefront of your business management plan will help you protect those relationships by ensuring your ability to fulfil your part of your agreements.
Cashflow is Important!
Don’t overlook the importance of proper cashflow management. It is lifeblood of any small business, and you can use it to ensure your business stays healthy, vibrant and growing for years to come.