Keeping your Company’s Cash Flow Happy – Debugging Budgeting!


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Keeping your Company’s Cash Flow Happy

Does cash flow translate to revenue? Certainly not. Deteriorating revenue with a robust cash flow is not going to be a saving grace for a failing company, but a good cash flow plan in a relatively stable business can work wonders. The important thing to note here is that cash flow deals with actual cash, as in payments received from the customers. 

So, what is Cash Flow Actually?

Money enters the company through sales, investments, etc. and exits the system through operations, investments, taxes, processes and the like. The record of this incoming and outgoing money comprises the detailed cash flow statement. Cash flow is indeed a crucial factor in any company’s finances, but not the totality of it. What methods need to be implemented depend upon the capabilities, strength and weaknesses of each method, in the light of the proposition that is offered by cash flow.

Understanding the Cash Flow Statement

The complete financial statement of any company, is made up of the balance sheet, the income statement and the cash flow statement. The income statement of a company depicts the profitability over the course of a financial year. The balance sheet details assets and liabilities of the company. The cash flow statement can clearly depict the working capital requirement of your company. In other words, the operating funds needed by your business to run efficiently. Keeping a close watch on the cash flow statement can help you regulate the funds required to keep your business running steadily. Here are some helpful tips that might aid you in better cash flow management in your business.

Understanding and Analyzing the Monthly Bank Statement

The bank statement is not just a ready reckoner for the funds that you have left at the end of the month. You will need to compare the balance you have in the beginning of the month with the balance at the end of the month. There might be instances wherein you haven’t made any purchases in a month towards restocking your inventory or spending on expanding your business, and that might make the month end balance more than the month’s beginning figure. That will not be an accurate measure of how your business is doing. On any average month, where you have regular spends and income, the ratio between the opening and closing monthly balance will be a good yardstick to measure your cash flow amount. In short, cash flow adds together the monthly accumulation of profit, accounts receivable & payable and change in the inventory.

Cash Flow Budgeting

If the cash outflows of your company are more than the inflows, it should be addressed on an immediate basis.

Ascertain Cash Inflow (Receipts)

As soon as goods and services are sold, they should be recorded immediately. Expenses occurring at the same time should be considered as well. Always keep in mind the profit and loss budget while deciding on the cash receipts of the month.

Ascertain Cash Outflows (Expenses)

Salaries, rent of the office/warehouse location, telephone bills, electricity bills, including management costs of the inventory, operational costs, spends on different departments and expenses incurred in execution make up your cash outflows.

Forecasting Cash Flow

Forecasting in any sense always includes careful observation. If you have kept track of the previous two points for quite some time and have a good grip on what your fixed expenses are, this might not be as difficult. At the same time, you will also come to realize the problem areas which affect your cash flow. There might be a few business units or customer segments that turn in the cash receivables at odd intervals or have irregularities in payments. You can then focus primarily on these points and act accordingly to normalize your cash flow.

Collecting Account Receivables Faster

Online, e-wallet, credit card payments if introduced into the business can make cash inflows from your customers a lot faster and boost cash flow for your company. Getting authorized for any of these services is much easier day by day. With a valid company registration certificate or even a current account statement from your bank, you can be set up with a decent e-payment option.

Planning the Flow of Inventory

Timing your inventory restocking with cash inflows is an effective way to protect your operating funds from being depleted. It also reduces the complications of calculating and tallies the incoming and outgoing cash at the same time instead of putting it off for later. Being mindful of the sales cycle helps. All being said and done, we would advise you to move to a digital cum physical bookkeeping if you haven’t already. Google Spreadsheets are a great way to start. If you already have a hang of operating spreadsheets, try out some free accounting software that is available for small business. You don’t necessarily have to invest a lot in a professional software. Cash flow deals with your company’s working capital and there are times when you might need some additional funds. Did you know that Lendingkart Finance offers working capital loans exclusively for small businesses? Want to know what you should keep in mind before applying for a working capital loan? Small Business Loans – Why and Why Not explains that in detail.

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