How to Plan Cash-Flow for Your Company

Cash flow cannot stop a bad business from failing but it definitely can help a solid business succeed. You can’t manage a successful business enterprise if you cannot manage cash flow effectively. The first and foremost thing which you need to understand is that Cash Flow is not same as revenue. You get real cash only when you collect payments from your customers.

What Is Cash Flow?

Cash Flow is the detailed statement that addresses how your business receives money (be it from sales or investments) as well as how it spends money (on operations, investments and taxes). Therefore it becomes crucial for your online business to manage the amount of cash entering and exiting your system.

While Cash-Flow is the primary element that defines a company’s finances, not all measuring aspects needs to be incorporated. You need to understand the strengths, weakness and capabilities of each method assigned with a unique preposition of cash flow.

What Is The Cash Flow Statement?

The Balance Sheet, the income statement and the cash flow statement together comprises a complete financial statement of a company. Balance sheet is the snapshot of assets plus liabilities and income statement is the profitability of company’s overview performance through a fiscal life cycle. But on the other hand, cash flow statement is a check book that reconciles the other two statements. It actually proves the authenticity of the balance and the income statement.

You need to ensure that your business never runs short of operating funds. All you need to do is control Cash Flow and maintain a steady budget to drive your business. Integrate following tips to create a Cash Flow plan for your business:

Read & Analyze Monthly Bank Statement

By simply comparing the beginning and end of month’s balance, you can know whether Cash Flow is positive or negative. Therefore, start reading your company’s monthly bank statement. If cash balance is higher than beginning of the month, then your Cash flow is positive. And if it is low, then the company may be facing a negative Cash Flow.

“Cash Flow is nothing but monthly accumulation of profit plus accounts payable, receivable and change in inventory.”

Together this three elements give you the net monthly bank statement.

Create Cash Flow Budget

If your company’s cash outlaws are greater than the receipts, than it’s really a matter of immediate concern.

Determine Cash-in (Receipts): Record revenue as soon as your goods or services are sold. Don’t forget to record expenses when they occur. First step is to take your profit and loss budget into account while forecasting cash receipts of the month.

Determine Cash-out (Outlaws): Your Cash-outlaws depend on the product and the segment in which you are operating. It includes fixed costs such as salaries, rent, telephone etc. Cost incurred in the management of your inventory, spends on various departments, operations and execution together make your cash-outlaws. .

Forecast Cash Flow Statements

You can forecast your cash flow by taking into account a finer level of modules such as business units, payment methods and customer segment. It helps you in determining insights into problem areas which require immediate actions.  Using such insights, you can forecast the amount of cash to be collected from your customers and the bills which are to be paid to the vendors and other stakeholders.

Collect Account Receivables Faster

You can manage Cash Flow by introducing a platform where you can collect online payments from your customers instantly. If you can get paid in advance or you can accept credit card payments, then you can boost Cash Flow.

Plan Inventory Flow

Maintaining an inventory which waits for customer orders takes a lot of cash out of your company’s account. Therefore, do take into the account sale cycle of your products and services.

Above points will definitely help you improve company’s Cash Flow Position. Also read our blog on “Impact of GST on Online Businesses.”

 

Author: Arun Agrawal