Why a Cash Flow Analysis is Crucial for Your Small Business
Wednesday, December 15th, 2021
Cash Flow essentially determines the health and solvency of your business. Poor management of cash flow is to blame for the downfall of over 80% of all businesses, according to one study. Cash flow is how money comes in and goes out of your business, and it is imperative to monitor.
Cash flow analysis takes a closer look at this movement:
Cash Flow Analysis
Cash flow analysis takes a closer examination of different things that could be impacting your cash flow; some of the things involved may be inventory, accounts receivable, accounts payable, and lines of credit. By looking at each of these components, you will find ways to curb costs as well as improve cash flow, ideally.
Simple Equation
For a simple equation to conduct a cash flow analysis, compare unpaid purchases at the end of your month with your total sales for that same month. This will reveal if you will need to spend more money in the coming month than you have, which points to a possible cash flow issue. If your total unpaid purchases are more than the sales that you have due, you could face a money problem.
Identify Lags
Another benefit of conducting a cash flow analysis of your account receivables is that you will be able to pinpoint lags in prompt payment. In other words, the assessment should identify any customers that are slow to pay their bills with you.
Small Business
Small businesses should be particularly concerned with conducting regular cash flow analysis. This is key for companies that could grow quickly or that pay more for labor due to a smaller workforce. It is also key when you need to invest in equipment, inventory, or supplies to get off the ground.
This is very prudent for seasonal companies and businesses, also, like landscapers or holiday-themed stores and establishments. It is important to track expenses, revenues, and cash flow for these companies that depend on small spurts of patronage to thrive year-round.
Falling Behind?
It is not uncommon for cash flow issues to be the result of poor bookkeeping. Many business owners or entrepreneurs are simply too busy to keep their books, invoices, and accounts in order. Accounting software and services offer a solution to cash flow systems and analysis. Consider hiring a bookkeeper or service that will take care of cash flow statements on your behalf.
Want to learn more about cash flow statements and systems? Talk to the professionals at BMH Accounting; they will take care of bookkeeping to ensure small businesses, self-employed contractors, and entrepreneurs keep their books up to date and don’t fall behind in areas like accounts payable, invoicing, and collections- all that impact the overall health and success of any company.
Tags: accounting, business decisions, business finances, business profits, business reports, business revenues, business taxes, cash flow, cash flow analysis, small business finances, tracking business finances