What Is Cash Flow & Why Is It So Important?

Measuring the success of your business can come in many forms, from customer retention and referrals to the productivity and attitude of a team. However, the one critical and universally accepted measure of success in business is cash and a cash flow statement or analysis is the most effective way to see it all in one place.

Although it is relatively straightforward and descriptive by name, cash flow can be a little deeper than the incomings and outgoings of cash. When utilised accurately and regularly, a cash flow statement can provide a glimpse into the overall current performance of a business and also looks into what can be expected in the near future. So what is cash flow and why is it so important for business owners to wrap their heads around?

It Provides All The Financial Details

Unlike a profit and loss statement, cash flow gives a far more granular view of where money is being spent, such as investments, operating expenses, financing, and all the other intricacies that go along with the cost of running a business.

Helps You Make Informed Decisions

In the initial stages of building and establishing a business, or even when you’re looking to expand, that generally means buying more equipment, more inventory, and employing more staff, which can all add up as costly expenses. Being able to forecast how and when you should make the call to expand, will allow you to act on the priority actions and move forward with a clear plan of action for the remainder.

Assists With Short & Long Term Planning

Keeping a sufficient amount of liquid funds to take care of various incidentals or operating expenses are all part of the short-term financial planning for a business. When it comes to the long-term, having a projected cash flow helps the management of the business to identify potential growth opportunities and understand what size scope is most realistic.

The Best Ways To Manage Cash Flow

With all of that in mind, here are some of the best ways to keep tabs on your business’s cash flow:

  1. Closely monitor the invoices that are being sent to clients and ensure there is a process in place to invoice as early as possible and to follow-up at certain times to keep incoming payments flowing on track as much as possible.
  2. Use digital solutions to keep a ‘paper trail’ and quickly give you an accurate overview of all things cash, as well as correct, reliable data to base your decisions off.
  3. If there is looking like an excess of cash is expected for the coming months, have a plan to put this in short-term investments to maximise your income and get the most out of your money, which you can use to further expand and grow your business.

When it comes to managing cash flow, on top of running a business, it can be overwhelming, to say the least, but it doesn’t have to be a difficult process. Allsafe Insurance Brokers exist to work with small to medium companies to optimise and simplify your insurance options to not only protect your business but give you peace of mind. Contact us today to find out how we can help!