Cash flow: learn how to do it in 6 steps

Regardless of the size of your company, financial organization is essential for maintaining its activities and growing your business. Therefore, using financial tools that allow for organization and planning is essential to stand out in an increasingly dynamic market.

In this post, you will understand what cash flow is and learn how to do it in 6 steps, as well as understand the precautions and advantages of this powerful tool . Check it out!

1. Understand cash flow

Despite its name, cash flow should not be considered only in relation to the company’s money . In its preparation, those amounts that are in the current account and in short-term investments should also be considered . These amounts are considered cash equivalents because they can be easily converted into cash if necessary.

After separating the balances of cash and cash equivalents, you must also separate and record the amounts relating to the inflows and outflows of financial resources . Inflows are all amounts received by your company, mostly represented by receipts from customers for sales of products or services .

In the case of departures, the relationship is made with the main activity of your company; therefore, the most common payments are salaries , suppliers and other day-to-day bills so that the company can operate.

2. Use management software

The use of integrated and differentiated solutions allows you, in addition to greater organization in your finances , to account for and recognize all movements easily and quickly. Furthermore, with the use of technology , it is possible to access from different locations, ensuring agility and speed in the insertion and consultation of data.

3. Create categories

By using management software , you can expand the use of your cash flow , allowing it to be an excellent management tool . In order to use the data generated by the cash flow in the decision-making process , it is necessary to group both the inputs and outputs according to categories .

In the case of expenses, it is possible to understand where your company’s money is going, allowing you to replace some costs or even cut those that negatively impact the result within your planning . Regarding revenue , you should group them to know who your main customers are , how often they buy or even the average ticket value of each one in your business .

Both expenses and revenues are important data for the decision-making process , and studying the behavior of these elements is essential to maintain and improve the company’s results.

Expenses can also be classified as fixed and variable , which will help you understand which ones are essential and occur every month and which ones can, with planning and organization , be rethought within the structure of your organization.

4. Update daily

In order for the input and output data to reflect the company’s financial reality , one of the most important steps in preparing the cash flow is the daily insertion of accounting transactions . Try to include in your company’s routine the checking of cash values , statements, payments and receipts and the insertion of these in your cash flow control .

Daily updates are essential for you to understand the organization’s reality , allowing you to know whether or not there are resources and whether they can be used in case of capital needs. In addition, this check helps you avoid overdue accounts , avoiding paying fines and interest and also possible problems with customer default.

5. Beware of post-dated checks

Post-dated checks deserve special care when preparing your cash flow . Both those received from customers and those used to pay suppliers and other bills should only be recorded on the date they actually become part of the company’s financial transactions .

To avoid problems when recognizing checks , it is recommended to use an additional control and only enter entries and exits when the checks are cleared or entered into your bank account.

Including these values ​​in advance and incorrectly can compromise the real effectiveness of your cash flow , giving a false impression about whether or not your available amounts are accessible.

6. Plan your finances

Another more managerial step in cash flow is projecting results. With cash flow projection , you can know in advance what your finances will be like in a given future period and, with this, you can determine whether there will be a need for working capital , loans or other types of financial movement .

The projection also allows you to know whether you will be able to purchase the machine you need or whether you will have money to reinvest in the company or according to your plans. Additionally, the projection helps you understand periods of seasonality , that is, greater and lesser inflow of resources , and allows you to set aside capital for more difficult periods.

As you have seen, to create an efficient cash flow , you must first understand how the method works. Then, it is essential to use good management software , create categories and update the tool daily. You must also pay attention to post-dated checks and use cash flow projections to predict possible cash needs or surpluses.

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