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Cash flow management is tracking and controlling what money comes in and out of your business. This is key to achieving good liquidity in your business.
Cash flow management is about planning ahead financially. Cash flow is basically all the money that goes into the business and out of the business. You can make budgets with a plan for your business’s cash flow, however sometimes you have to spend more than you have planned or maybe your customers pay later than you expected.
Cash flow management has the same principals for small and big businesses. However, the smaller your business is and the less transactions you have the less you have to manage.
Read also: The ultimate guide to liquidity and cash flow.
Different types of cash flow
We can divide cash flow in to three categories:
Cash flow from operations
Cash flow from operation describes money flow from the ordinary operations in the business. This can be from production or sale of goods or services. This determines whether or not a company has enough funds coming in to pay bills and operating expenses. There should be more operating cash inflow than outflows to have long-term viability.
Cash flow from investing
Investing cash flow is the figure that represents how much money has been generated or spent from investment-related activities in a given period.
Cash flow from financing
Financing cash flow demonstrates the net flow of cash that is used to fund the business and the working capital. These types of transactions can involve debt, equity or paying dividends. Cash flow of finances provides investors with insight of a business cash position and how well the capital structure is managed.
Read also: How to improve the liquidity of your business.
3 tips for good cash flow management
Make a cash flow forecast
Having a cash flow forecast is essential for businesses, providing a range of advantages to aid in making well-informed decisions and maintaining financial stability. When creating cash flow forecasts you can either create one from scratch or use a template.
Control your expenses
Make sure you have control over your expenses. It is smart to map out what you absolutely need and what is nice to have. If you need to cut your expenses, you know you can cut from the things that are nice to have – but not necessary.
Also, don’t spend more than you can afford. Maybe you can find a cheaper solution or cut some expenses? One example is choosing a free invoice software, like Conta.
Have a buffer
Not everything goes according to plan. Maybe your customers don’t pay in time or at all or maybe you have an unforeseen expense. If so, you should have some extra funds to take these expenses from. Otherwise it can give your business financial issues once you meet that kind of problem.
