How to Manage Cash Flow? Organize Your Income and Expenses!
Financial organization is essential for a company’s operations. And if you want to avoid headaches, it is essential to know how to create a cash flow. After all, it allows you to organize the inflow and outflow of resources and, from there, identify the current financial situation of the business.
However, those who believe that everything can be solved by creating a spreadsheet of expenses are mistaken. When we talk about cash flow, we are referring to determining the available balance, making projections, creating goals and having a viable working capital to cover all the company’s operations, among other steps.
It is a pretty simple process, but its complexity often requires dedication. A lack of a clear view of your company’s financial health can lead to several unforeseen events and, in the worst-case scenario, can even lead to bankruptcy.
So, if you want to know what cash flow is for, how to do it, and apply it in the best way in your business, this article is for you!
What is Cash Flow?
Cash flow is used to control and manage all financial transactions within a company. It is an easy method of organizing cash inflows and outflows; the amounts received are referred to as inflows, and amounts paid or related to general bills, to employees, or to suppliers, as outflows.
What is Cash Flow for?
You may be wondering: what is cash flow for? We have the answer! Consider cash flow as an organizational tool. With it, you will have all the records of cash control and this will give you full knowledge of your company’s financial situation, something that every manager should have.
With this information, it is possible to understand where you need to reduce expenses, what is being passed on to your suppliers, which taxes have already been paid, etc. Financial organization guarantees better results for the business, away from the feared market fluctuations.
And, if you are still not convinced to implement cash flow right now, here are some advantages of this practice:
- improves financial vision: you have a better overview of your finances in real time;
- facilitates decision-making: you can base financial decisions on up-to-date data;
- allows strategic planning: cash flow makes it possible to outline short and long-term financial strategies;
- identifies possible problems: there is nothing better than being able to solve possible obstacles without them turning into big problems;
- control expenses : one of the great benefits of cash control is being able to adjust expenses, avoiding debt;
- sharpens your vision of opportunities: with your financial vision in hand, you can identify where you can invest in improvements for your company;
- possibility of optimized negotiations: reports can help with insights to negotiate with suppliers and partners;
- meeting deadlines: by organizing cash inflows and outflows, you can settle your commitments on time.
How to Organize Cash Inflows and Outflows? Practical Tips
Now that you understand what cash flow is for, we will show you some tips on how to use it correctly in your company.
Check the Starting Balance
First and foremost, determine how much cash your company has on hand; that is not only the amount that can be used right away but also the amount invested and otherwise available in cash form.
Record the Movements
Once you know the amount of cash in hand, start recording everything that was spent and received by the company. Everything, even those amounts that you may think are “irrelevant”.
Make a note of sales made in cash and on credit, payments that have been made and those that still need to be made. Also include accounts receivable, from the smallest amounts to the largest investments.
Here, all values are important!
Categorize Income and Expenses
Categorizing income and expenses is an important step because it helps you understand where your resources come from and which expenses can be cut or reduced , if necessary. This way, you have an idea of where your money is going in the company and can recalculate the route or not.
Establishing and dividing categories is a strategy to optimize cash flow. You can separate them into: “Suppliers”, “Administrative expenses”, “Employee salaries”…
Design!
Now that you know the values and have the data entered and categorized in your cash flow, you can start thinking about future projections. And there’s nothing better than making plans, right?
Start by thinking medium-term, using values that are not too far from what is in your report.
Establish a Routine
Many of the activities in a financial sector are repeated month after month. And, for your cash flow to occur without major surprises, there needs to be a well-established routine of actions.
Understand the company’s reality and define the best strategy.
Update Data Constantly
Remember to always keep your data up to date. This is the best way to make good short- and long-term financial planning. This way, you can identify opportunities for your company’s success.
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