Cash Flow Monitoring for Small Businesses
Today, we are going to talk about the importance of Cash Flow monitoring for small businesses.
Based on a study, 82% of business failures, are from poor management of cash flows…
No wonder they say, Cash is King!
Running out of cash is disastrous for any business, let alone small businesses!
I am Agha Hussain Senior Associate at Premier Group, leading the accounting practice
So, what is cash flow and why is it important to manage it?
In simple terms, it is essentially the movement of money into and out of your business. This determines your business’s solvency, which means your ability to pay your most immediate expenses in a timely manner! A proper system of timely analyzing cash flows is crucial to flag cash flow problems and maintain an adequate cash flow for your business. In case existing cash flows are not enough, using lines of credit or temporary loans which are normally considered; to bridge the cash flow gaps.
Therefore, we need to perform a Cash Flow Analysis on a regular basis.
A quick and easy way is to compare the expected inflows with expected unpaid payments in the coming months. If you have more coming in then going out, you are good. Otherwise, you need to make arrangements for cash!
Therefore,a more complex and thorough analysis will be based on your accounts receivable, inventory, accounts payable, and credit terms.
So, what are the pre-requisites for performing a cash flow analysis?
Well, the only one is, having accurate books of account. Sometimes cash flow issues are simply a result of poor bookkeeping practices.
To conclude, I would like to quote Richard Branson, that we all know through Virgin Group
‘Never take your eyes off the cash flow because it’s the life blood of business.’