Understanding Cash Flow Will Help Your Business
Cash flow is the total amount of money that comes in and out of a business. It is a key indicator of the financial health of your business. A consistent, positive cash flow can help you pay expenses, invest in new opportunities, and grow your business.
Proper cash flow management is an important strategy that every business owner should master for long-term financial success. However, managing cash flow can be one of the biggest challenges a business owner faces.
What Is Cash Flow?
Cash flow is the net amount of cash that is going in and out of a company. A company's success is determined by its ability to create positive cash flows through the normal course of its business operations. Cash coming into a company, known as inflows, consists of revenues from the sale of goods or services as well as income from investments. Cash going out of a company, known as outflows, consists of expenses and debt payments.
Repeated periods of positive net cash flow are a good sign that your business is ready to expand, whereas repeated periods of negative net cash flow can be a sign that your business is struggling.
How Can You Increase Cash Flow? There are several ways to increase cash flow for a business.
Ways to increase cash flow for a business include offering discounts for early payments, leasing not buying, improving inventory, conducting consumer credit checks, and using high-interest savings accounts.
Here are some tips to help you improve your cash flow:
Stay on top of bookkeeping so you can monitor inflows and outflows
Generate Cash Flow Statements along with your Profit & Loss and Balance Sheet
Figure out whether you need to increase cash flow by analyzing financial statements
Cut spending where you are able to
Remember to invoice customers in a timely manner
Be sure to follow up with your customers on past due invoices
Speed up your accounts receivable by offering discounts for early payment
Pay your bills on time to avoid unnecessary late fees
Use high-interest savings accounts for your business
Consider securing a line of credit or business credit card before you are strapped for cash
I hope this article helped you learn a little more about cash flow. If you have any further questions about this or other bookkeeping subjects, please contact me at Rebecca@RHBizSolutions.com. I look forward to talking to you about your bookkeeping needs.
Here's To Your Success!
RH Business Solutions
Any accounting, business or tax advice contained in these articles, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Please seek consultation from the appropriate accounting/tax professional.