As a business owner, you must take cash flow management seriously. After all, cash shortfalls may lead to unpaid bills and salaries, which hurts your business. Cash management must be incorporated into the budgeting and planning process to reduce liquidity problems and make sure you have enough funds to fulfill your financial obligations. This makes it important to hire a Clifton Park, NY accountant to help you manage your finances.
Importance of Cash Flow
Your business cash flow includes proceeds earned or payments made from buying or selling business investments. Also, it covers money that moves between your business and its investors, owners, and creditors.
Cash in business is used to pay bills, fund growth, and support operations. It is important to understand the flow of cash in your accounts, so you can get insights into your expenses and determine whether such expenses have helped achieve your goals. You must know when you should set aside cash to cover future expenses; instead of spending the money kept in a bank account. To effectively manage your cash, you must have a clear view of the liquidity needs of your company.
Kinds of Cash Flow
Cash flow is categorized into the following:
- Operating cash flows. Such a category includes cash flows that support your main business purpose. Sales revenues are examples of operating cash flows into your business. Payroll, manufacturing costs, and vendor payments are examples of outgoing operating cash flows.
- Investment cash flows. These include cash utilized to fund upgrades or expansions such as equipment purchases and payments related to buying another business.
- Financing activity cash flows. Cash transactions may be used to finance your business through equity or debt. It includes cash obtained from bond proceeds, stock issuances, and cash outflows when you pay dividends.
Importance of Cash Flow Management
Managing your cash flow properly can prepare you for business challenges. Having liquid cash on hand allows you to satisfy financial obligations when they arise. Effective cash flow management lets you manage unexpected expenses. Also, it lets have better control of your business expenditures. By understanding available liquidity, you can decide when to innovate, launch new marketing offerings, and enter new markets.
In addition, smart cash flow management can increase your access to financing. Lenders, bankers, and investors often analyze cash flow associated with operating activities as they take into account funding requests. Solid cash management can lead to improved outcomes when you seek outside investment or apply for loans.
