When you are thinking about your business financial assets, you are probably thinking about the money you have in your bank account right now. However, when you think about the money your business has to work with, you need to dig a little deeper. Just considering the money you have in your bank account now isn’t enough. You need to think about the money you have in your account, as well as the money that is going to come in and out of your account. This is where the idea of cash flow comes in.
What is Cash Flow
When we are talking about Cash Flow, we are talking about the amount of money that is flowing into your bank account and the amount of money that is flowing out of your bank account. Money flowing into your bank account includes closed sales, deposits from customers, loans from banks, tax refunds, and interest from savings and investments. Cash flowing out of your bank account includes employees’ salaries, sales tax, income and payroll taxes, loan payments, rent, and building expenses.
Why is Cash Flow Important?
Knowing your financial situation means knowing your cash flow. If you know what money will be coming into your bank account and coming out of your bank account, you are able to forecast what your future financial situation will be. The best part of knowing your cash flow is you are able to know what risks you can take financially and what risks you can not take. Having a good cash flow where more money is coming into your bank account than coming out means you are budgeting correctly. If the amount of money coming into your bank account continues to increase, you are doing a good job of increasing your sales and managing your expenses.
How to Get a Successful Cash Flow
1. Know your Base Operationals – Knowing exactly what your expenses are every month helps you keep track of what money is going to be flowing out of your bank account. It also helps you create and stick to a budget. A great way to keep track of your operationals is to create a running list of your expenses and update it as things change.
2. Keep your records up to date - Understanding the cash flow of your business will not happen unless you keep records of what money is coming in and out of your business. If you fall behind, your knowledge of your cash flow will be off. The better organized your records are, the better you can account for the money you will have in the future.
3. Have SAVINGS – Having money saved is extremely important. It gives you something that you can depend on being in your bank account each month in case some type of emergency comes up. We recommend having at least 3 months’ worth of expenses in your savings account and 1.5 months’ worth of expenses in your checking account.
4. Set Your Budget and Track It – Having a set budget means you have consistency in your cash flow because you are keeping what is coming out of your bank account to a set amount. This gives you a safety net and something to rely on. Compare your budget to the cash coming in and out of your bank account. If you set your budget in the beginning and notice something that is not working or off, adjust it and then keeping tracking it.
Need Help Improving or Understanding Your Cash Flow?
Understanding your cash flow and improving it can be a little daunting but don’t stress over it, we are here to help you! Connect with us on our contact page and we will be in touch with you soon. Don’t forget to check out our Monthly Cash Flow Manager.