For your organisation to flourish and stay healthy, you’ll need to keep an eye on your cash flow. So, it’s important to know:
- What a cash flow is
- How a cash flow is generated
- How cash flow problems occur
What is cash flow?
A cash flow is the total amount of cash or cash equivalents that flows in and out of your business. It considers an organisation’s financial incomings and outgoings and can be used to create long-term free cash flows.
One of the most important aspects of running a business is assessing your company’s financial performance and stability. So, it’s a good idea to consider the below in terms of your company’s cash flow:
These are some of the most essential aspects of financial reporting and are key to assessing the liquidity and flexibility of your company.
Positive cash flow is a term used to indicate that assets within the company are increasing and that this additional cash can be used to:
- Cover expenses
- Reinvest into the business
- Act as a safety net against future financial difficulties that may arise
You can assess cash flows using a standard financial statement – known as a cash flow statement – which documents how much cash and sources your company uses over time
Unfortunately, not all cash flows are positive and problems within a cash flow can be difficult to assess, leading to significant financial difficulties the longer they’re left unattended.
Fortunately, business recovery professionals like Accountants East London play an important role in spotting cash flow issues early. Similarly, they can play a critical part in figuring out ways to infuse capital fast. An accountant will help you prepare for uncertainty and find solutions before the impact of an unwanted cash flow.
Cash flow management
Having a solid cash flow management plan is essential for the fluidity and liquidity of your business. Essentially, cash flow management provides a safe space to assess cash flow in a way that can avoid cash loss issues.
Managing cash flow is essential for exponential growth and the continuing existence and development of any business. It’s a necessity, regardless of the size or expected growth rate of a company.
By working on cash flow management, you have the figures you need to help your business survive and reach its proposed objectives. The primary goal of cash flow management is to maintain and ensure a positive cash flow is generated by using proposed strategies that consider the origin, and destination of money within the business.
Why is cash flow important?
Imagine your business is a car. In this instance, cash flow is the petrol you need to keep the car running. Just like the human body needs oxygen and food to survive, a business needs a sustainable cash flow. The human body, for example, needs bread and water to survive – this is the cash flow of a business. So, sustainable cash flow is essential to run all business activities.
Causes of cash flow problems
Cash flow problems can arise due to a variety of situations, such as:
- Low sales
- Delays in paid invoices
- Money tied up in stock
- An increase in expenses
- Investment in new assets
- Suppliers not allowing credit
- Taking too many drawings out of a business
Solutions to cash flow problems
You may be able to solve cash flow problems easily through a number of methods, such as:
- Reducing expenses
- Improving cash flow forecasting
- Invoicing correctly
- Inventory management strategies
If you notice the subtle signs of a possible cash flow issue, it’s critical to take action as soon as you can. We hope these strategies will help when it comes to solving any cash flow problems you may experience.
Reach out to a professional for help
If you have concerns about cash flow problems or any aspect of your business finances, get in touch with us today and see how we can help you.