In this way, cash flow is an essential tool for controlling finances. However, many entrepreneurs neglect this task. This is often because they are unaware of the negative impacts that negligence has on a business.
Thinking about helping you deal with this dynamic, this article will show the importance of controlling the cashier’s inputs and outputs, in addition to presenting 4 tips for performing this task.
Continue reading and check it out!
What is cash flow?
Cash flow refers to the financial control that allows a broad view of the company’s inflows and outflows of resources in a given period. Thus, the tool helps to identify how money is spent and what are the opportunities to save or invest.
In addition, cash flow allows you to monitor revenues and favors understanding of billing. Therefore, the company can define financial goals and strategies more in line with its needs for the future.
How does cash flow work?
How cash flow works is based on a detailed analysis of business finances. Thus, the company must record income and expenses for a given period. It is worth mentioning that there are tools that can help in this process, such as financial management systems .
With the cash flow survey, entrepreneurs can access an important database about the business. Thus, they now have the necessary resources to make more conscious and strategic decisions.
What are the risks of not having an organized cash flow?
After understanding what cash flow is and how it works, it is necessary to understand how the lack of organization with the inflows and outflows of resources can harm your business.
Lack of information about money
Without an organized cash flow, it is impossible to identify the origin and destination of the company’s financial resources. In this sense, registering the movements made allows you to discover which products or services generate the most revenue, for example.
The process also helps identify which expenses can be reduced to maximize profitability, among other important points.
Difficulty executing projects
Another risk that a company that neglects cash flow is exposed to is the difficulty in putting plans into practice. After all, to grow in the market, it is essential to have good financial planning .
lack of control of expenses
There is also the risk of losing control of business expenses. If this occurs, it becomes more difficult to maximize the profitability obtained during the analyzed period. Furthermore, there are greater risks of indebtedness, which could compromise the business.
Therefore, it is essential to have control and planning to identify expenses that can be reduced, in addition to drawing up an action plan to achieve this goal.
Commitment to decision making
Cash flow helps to improve the quality of decision making. Therefore, those who do not control inputs and outputs are exposed to the risk of not having up-to-date and accurate information on which to base their choices.
4 Tips for organizing and controlling cash flow ins and outs
Knowing the risks of not organizing and controlling cash flow, the importance of this process is clear, right?
So check out the following 4 tips that will help you perform this task more easily in your business:
Log and categorize all inputs and outputs
The first step is to record all inputs and outputs — which can be done in spreadsheets . However, it is much simpler to use financial management software . At that moment, it is essential to write down everything that comes in and goes out of the company’s money.
This includes payment of employees, rent, energy, raw materials, investments, sale of products or services, loans, etc. It is also interesting to consider the fixed accounts and the installments that will enter in the following months, which helps in projecting cash in the future.
Also, it is worth categorizing the entries to identify the main sources of revenue for the business. This knowledge allows you to make greater investments in these products or services to maximize the company’s earnings.
Categorizing outputs, on the other hand, makes it easier to control expenses. Thus, it is possible to identify which are the company’s biggest expenses and if it is putting more money than it should in certain areas.
Make comparisons between different periods
Considering that financial management systems issue reports, it is worth taking advantage of the records to compare your results in different periods. For this, it is essential that data on inputs and outputs are up to date.
This way, you can evaluate your cash flow performance month by month or over different time frames. As a consequence, it is possible to analyze whether the strategies used are bringing the expected results.
Look for opportunities to reduce costs
Since cash flow involves all payables and receivables, one way to change your results is to make adjustments to cash outflows. Therefore, it is interesting to review corporate spending. After all, to have a positive balance, you need to spend less than you earn.
Therefore, analyze the monthly costs and see if there are any expenses that can be cut. This process also helps identify points of improvement to improve operations.
Another possibility to reduce costs is to negotiate with suppliers or seek better conditions with other partners.
Evaluate working capital
Working capital refers to the total resources needed to keep your operations running. One of the elements that compose it is the cash value, which depends on the organization of inputs and outputs.
Therefore, in order to have working capital available to make all payments without compromising your cash, it is essential to align all processes. An alternative is to adjust the deadline for receipt from customers to the deadline that the company has to pay its suppliers, in order to guarantee financial availability.