When it comes to your business accounting, cash flow is extremely important to how your business thrives. Good cash flow management ensures that you’ve got more money coming in than going out, shows that you’re good at what you do, and shows you’ve got a great accounting staff taking care of the back end.
What is Cash Flow?
Cash flow is essentially how much money is going in and out of your business. Cash flow is considered positive or negative based on whether the amount of money coming into the business is greater than or less than the amount of money going out of your business.
Positive cash flow is important for any small business’ accounting department, but it’s especially crucial to the success of startups. Lack of positive cash flow or negative cash flow within the first year almost always spells out the end for small business start-ups.
Cash inflow is the money that comes into your business, either from investors, loans, or client and customer payments. Inflow is critical to the success of your business. It allows you to pay your employees, vendors, and expenses, so positive flow is always ideal. Enough inflow means that you will have enough to invest more in the business, such as by hiring more people or getting better equipment.
Inflow can also be described as accounts receivable. Keeping accounts receivable records current and staying on top of getting your invoices paid is necessary for positive flow. Giving this position to a trustworthy and diligent employee in your business will help ensure that the money keeps coming in at a steady pace.
Cash outflow is the money that your business spends, whether it’s to pay your employees and vendors or to pay your bills and expenses. You can also refer to your cash outflow as accounts payable. In an ideal world, your cash inflow will exceed your cash outflow greatly, and you’ll have enough to pay all your bills with money left over.
Unfortunately, lean months do happen and you’ll need to rely on savvy accounts receivable work to help ensure that your cash flow doesn’t become negative. Taking advantage of discounts by paying early or on time will help manage outflow, as well as taking the full payment window for invoices that don’t offer early payment discounts. Being consistent and using smart tactics to keep your accounts payable low and your accounts receivable high will leave you with cash reserves to tide you over during the slow months.
For expert cash flow management for your business, contact Executive Accounting Services in Raleigh