Every entrepreneur needs to deliberate about their cash flow management system before establishing a business or streaming a business because cash is a foundation of every business that analyzes the performance such as how much cash organization is left to sustain from customers or clients and how much cash organization is left to pay to the suppliers, creditors. In simple words, we can say that the cash flow sheet also represents the bottom line in business.
To check out a cash flow management is the priority of every business owner so that they can set up their mind and respond by the actual cash flows into the business and out of the business and then they know how to deal with them further with business operations, investing, and financing activities.
What is a Cash Flow Management System?
Cash Flow Management is the crucial part of financial statements which is designed by the accountants and magistrate by the analysts such as creditors, investors, shareholders, lenders.
There are times when such situations arise when business owners need to show cash flow statements to the investors for taking a loan so that they can invest capital based on return on investment, lenders for taking a loan on interest based on annually or monthly. The role of these analysts finds out the company’s financial status to meet its future requirements. So as a business owner you want to make finer relations with these analysts so you must balance all the transactions related to expenses, income, revenue, liabilities, assets and put it into the cash flow statement effectively for a better profitability of the business.
When we sell our assets and inventories, we get to cash in exchange for that or we provide a loan to the other company on interest ie. cash inflow. Inflow cash includes account receivables such as a receipt from customers, interest, and dividends received. In simple words, cash is coming in exchange for whatever product/goods or services we are giving to someone from our company.
When we purchase stock from the vendor for our company’s circulation or take a loan from lenders such as a bank or other financial institutions on interest ie. cash outflow because we have to pay for all this at a fixed time. Outflow cash includes account payables such as rent, bills, utilities, interest and dividend paid, income tax paid. In simple words, cash is going in exchange for stock purchased from vendors or loans and other debt services.
Cash flow management prepares for optimizing, analyzing, measuring the constancy of account receivables and account payables to run the business constructively.
Tips for Better Cash Flow Management for small business
The Cash flow statement is the only financial statement that clarifies all the transactions at the end of the year and helps to evaluate the net income, revenue, profit and analyze performance as compared with last previous year’s cash flow statement.
Accumulate Account Receivables for better growth
Yes, of course as business owners or accountable we need to improve our receiving capacity from customers or clients in exchange for goods or services. Account receivables are the amount of money received by the owner from customers. If account receivables are not properly received on time so it will put a bad impact on the investing activities under the cash flow statement even if it shows a negative balance or negative income or negative revenue, or negative profit.
The Owner always has to be alert for collecting any due payments from customers on time by using payment due reminders which remind the owner of whom you collect money or not.
Pay all debts as account payable fast
Yes, of course as a business owner or accountable we need to improve our paying capacity to the vendors or suppliers, lenders in exchange for stock or money. Account Payables are the amount of money paid to the vendors or suppliers. If all the debt is not paid on time so it will put a bad impact on financing activities under the cash flow statement.
The Owner has to be alert for paying any debts at a given time by using debt reminders which remind both the owner and vendors.
Improve cash flow statement with the help of Analysts
One situation comes when we need to get assistance from any analyst who can be a lender, creditors, investors, or shareholders. So these analysts play a very substantial character in the company like the role of investors as well as advisor’s roles. The work of all these analysts is different and they all play their role according to the cash circulation of the company.
Investors are like the financial helpers of the company who provide capital in the form of startup capital and get paid interest on fixed investment from the company based on monthly income. Investors put money into financial schemes or a commercial organization when they think they can achieve a good profit from here. That’s why they have the right to inspect the cash flow sheet to check out the financial status of the company.
Shareholders are equal partners in the organization who receive equal profit from income with other shareholders. The Contribution of shareholders is sizable than the investors because they invest the money as a shareholder in exchange for equity shares of the company. Even they may need to invest in the company anytime whenever the company has a need. That’s why they have the right to inspect the cash flow sheet to measure the company’s actual position.
Creditors are like lenders who provide money to the organization to handle some financial crises happening in an organization anytime. Before providing money as a loan, creditors examine the cash flow statement from the previous year to the current year to analyze the financial position of the company and find out the paying capability of the company.
Proper sale of Inventories
Inventories are counted in assets so more inventories have to be sold in a year because it shows the company’s assets value in front of the customers or clients. Analysts measure inventory status by using the inventory turnover ratio.
If there is more inventory sale so more income will be generated from better revenue and it will put a virtuous impact on the cash flow statement and if there is less inventory sale so less income will be generated from low revenue and it will put a substandard impact on the cash flow sheet.
Utilize accounting tools
Accounting tools is the best option to adopt to prepare financial statement such as cash flow statement, income statement, balance sheet but if we talk about cash flow statement, if you want to make an effective balancing figure of cash flow statement so you can adopt best accounting tools which avoid minor as well as major mistake or errors in accounting transactions such as sale and purchase of assets, account payables and receivables. There are many accounting tools such as:
- Quickbooks for small business
- Sage accounting software
- Zoho accounting software
- Zip books accounting tool
- Wave accounting tool
- Slickpie accounting tool and many more.
Cash Flow Statement Strategies
Every commercial work has a strategy so that the organization can meet its desired goals in a fixed time.
Better connection with customers or clients
If you want your cash flow statement to always represent a positive result at the end of the year so you need to collect all the invoices, interest on investment to the other company, and dividend receive, the receipt from customers on goods or services on time for better evaluation of the cash flow sheet. And to receive this, you must have a good relationship with your clients.
Better coordination with suppliers or vendors
If you want that your cash flow represents always positive results so you need to make better coordination between the suppliers or vendors of your products who give you the stock on debt for some period and you can pay all the debts steadily so that you can balance your debts with the account receivables and available cash. Instead of paying debts, you must have some cash for showing into cash and cash equivalents.
Enough Available cash
You must have enough cash to balance the cash flow sheet so that you can cover all the expenses and liabilities with that amount and also some amount should be left to show the company’s profitability and capable of purchasing the assets for the next year.