1. Cashflow of a business generally refers to the movement or flow of cash into and out of the business over a specific period of time. For example, a business will receive money from the sales of goods and services that it made to its customers. On the other hand, withdrawals of cash out of the business are usually for expenses incurred such as for purchase of goods, rental, salaries and so on.
2. Every business should that tracks its cashflow consistently. Apart from being able to know where are the cash are coming from and going out to, keeping track of cashflow helps keep businesses organised and help them with their budgeting process. This will enable a business to optimize their revenue and expenses more effectively so that they can plan for future projects and growth. For example, they can plan to hire more staffs, buy more equipment for projects and invest in new areas by knowing in advance their cashflow situation.
3. Maintaining a business cashflow is like balancing your cheque book. When a business have sufficient cashflow, they may use the available cash to pay for capital expenditures, inventories or advertising services. Consequently, when a business have low cash flow, they may cut back on staffs, purchases and other unnecessary expenses in advance so as not to overspend and avoid having to borrow from the bank or going into debt.
4. In order to make sure your bank account stays healthy, every business need to manage its cashflow effectively. In business, a strong cashflow ensures a company stays in operation and ultimately increases its chances of long-term success by enabling it to:
- forecast receipts and payment cycles and seasonal trends
- cover the cash gap between receivables and payables
- predict shortages and surpluses
- plan ahead to make sure cash is available to cover unforeseen payments
5. While many equate the success of a business to its
reported profits, they do no adequately represent the financial
situation of a business. Cashflow, on the other hand, provide a more straightforward picture of a business. For example, a business can appear profitable “on paper” but not have enough actual cash to sustain its operations. Whereas if a business have no cash to purchase goods or pay for its operating expenses, it will become unable to generate new sales or hire staffs. The business will not be able to grow and eventually become not sustainable.
6. Overall, understanding a company’s cashflow situation
is crucial to making sound business decisions. Every business owners
must strive to understand and always be in-touch with
the cash aspect of their company, regardless of the
profits reported. Fortunately, business owners do not
have to do it alone. They can work with their accountant like PL Biz Consulting to review the cashflow situation of their business.
7. For expert accounting and support for your business, please come and talk to us. We at PL Biz Consulting Pte Ltd have the expertise and dedicated accountants to guide and assist you.
