What you need to know about managing your cash flow
Whether your business is big or small, you need cash to survive. Your suppliers need to be paid, you need money to pay wages if you have staff, and then of course, there are bills and expenses.
As your business grows, so does the need for cash, so it’s absolutely crucial to monitor the flow of cash in and out of your business.
Understanding cash flow is key to running a successful small business. Knowing how to manage your cash flow effectively will go a long way towards ensuring your business continues to run smoothly and stays on track financially.
So what is cash flow, and why is it so important for your business?
Cash flow is the movement of funds in and out of your business. You should be tracking this weekly, monthly or quarterly. There are essentially two kinds of cash flows, positive and negative.
Positive cash flow happens when the cash flowing into your business (sales, accounts receivable, etc.) is more than the amount of cash flowing out of your business (accounts payable, monthly expenses, salaries, etc.)
Negative cash flow happens when your outflow of cash is greater than your incoming cash. This generally spells trouble for a business, but there are steps you can take to remedy the situation and generate or collect more cash while maintaining or cutting expenses.
It’s a really good idea to do a monthly cash flow analysis to make sure you have enough cash each month to cover your payments in the coming month.
There’s no way around it, to achieve a positive cash flow you need to know what’s going on with your accounts. If someone asked you about the financial health of your business, you should be able to tell them quickly and easily. If you can’t, then you need to get it sorted, and quickly!
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