Getting Cash Flow to Work: Know Where It Goes

No matter what business you are in, the old adage of "cash is king" always runs true. And if cash is king, then cash flow is what keeps the kingdom operating. Cash flow is a critical element of the success for any business. Without it, profits are meaningless. Many businesses that appear profitable on paper have had to file for bankruptcy because of an incongruence between the amount of cash coming in, and the amount going out. In fact, Philip Campell, financial officer and author of Never Run Out of Cash, says, "Despite the fact that cash is the lifeblood of a business, most business owners truly don't have a handle on their cash flow... Poor cash-flow management is causing more business failures than ever before."

So how do you avoid becoming one of these many business failures? Budgeting and managing your cash flow is a great place to start. To get cash flow to work for you, it is essential to know where the cash is, where it's going, and how to get gain more when you need it most.

The Basic Elements of a Budget

A cash flow budget uses numbers to help anticipate your company's cash flow needs, an essential aspect of ensuring operations continue running smoothly. The basic elements to calculate are:

  • Starting cash, or how much you have at the beginning of the month, or other start point.
  • Cash in, or all the cash received during the month. This includes sales, interest, paid receivables, and cash from the sale of stock or assets.
  • Cash out, or all of your fixed and variable expenses.
  • Ending cash,or how much you have at the calculated time period.

Good Management Practices

Daily record keeping and reporting of your cash flow in and out is necessary for staying on top of cash management. Consider the following advisable steps for monitoring cash flow:

  • Depositing received checks everyday
  • Use pre-counted cash receipts and keep daily track of them
  • Dispatch customer invoices within 2 days
  • Collect any outstanding receivables within 60 days
  • Always apply for available cash discounts
  • Use pre-counted checks for disbursements



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