So, today we’re going to talk about cash flow. What is it? How do I measure it? And Why should I measure it?
What does cash flow mean? You’ve surely heard of the saying, “cash is king”. So, I’ve also got another saying for you, which I obviously stole from someone else.
“Sales is vanity, profit is sanity and cash flow is reality.”
Regardless of anything else that’s going on your business, you can actually go bankrupt if you don’t have sufficient cash flow to keep your business ticking over.
In the end, your sales and profit are important but they’re not exactly what allows your business to keep moving forward. Cash flow is what makes business success possible.
What is cash flow?
The best way to think about cash flow is by going into a practical example, such as this one:
If you’re a greengrocer, you’re going to the market in the morning. Imagine you spend $1,000 – that’s $1,000 gone. You take it back to your shop, you sell it all that day and you’ve made $2,000.
So, at the end of the day your cash flow is $1,000. At first sight, you might think you’ve just made $2,000 profit but that’s not really the case. However, your cash flow is moving and that’s great.
You’re investing and you’re making a greater profit out of it. Just keep in mind that your income cash flow should always be higher than your outcome value.
Otherwise, it means your business is not performing too well and you risk losing everything. Something must be done in order to reverse a negative cash flow.
There are ups and downs in every business but a constant negative cash flow means something is not right.
Now, by the end of the week, a good grocer knows whether they’re going to a restaurant or a club for dinner.
Cash flow management
If you understand the cash flow within your business, you are in a much better position to actually run it efficiently, make changes when the business isn’t going too well or increase your cash flow in order to increase the turnover of your business.
In my opinion, cash flow should be managed on a daily basis. You should know how much money is in the bank, what’s going out and what’s coming in.
Those things will keep you up to date on how to run your business and manage your cash flow effectively. It is only possible to do an accurate cash flow management if you’re fully aware of your business finances.
Therefore, you should monitor and analyse your money situation on a regular basis, as often as possible.
Get your business moving forward with the right cash flow management. Consider hiring an accountant if you’re too busy with structural matters.
You should ensure the future of your business by staying compliant and keeping a healthy cash flow. Get in touch with us, we can help you establish your cash flow starting today.