Cash Flow Analysis
The Heart of Every Small Business
Doing a cash flow analysis for a small business can make a huge difference when it comes to determining whether or not your business is on the right track.
The objective in any business is to make a profit but you can’t really be sure you’re actually doing that unless you have taken the time to consider your cash flow and remain on top of it on a daily as well as monthly basis.
Cash flow, as the name suggests, is the flow of money into and out of your business.
You should have a starting amount and then you will have both money coming in and various expenses that you have to pay on a regular basis.
Making an estimated cash flow plan can help you to keep track of exactly how much money you have and exactly where it is going so that you can better control spending and maximize profit.
Doing a Cash Flow Analysis
Every cash flow analysis for a small business begins with the starting amount. That’s the amount of money you have on hand to begin with.
From here, you will move on to estimating what your regular expenses will be, including rent, inventory and payroll. The more accurately you can assess how much you regularly spend, the better off you’ll be in the long run.
Next you’ll need to keep careful track of all money that comes in from paying customers. Using a sequentially numbered invoice system is a good way of keeping your business transactions in order so that you can easily figure out exactly how much money came in and when.
Then you can compare this against the expenses for the month and see what your ending cash, or the amount you are actually left with, really is.
Cash Flow Chart
The best way to keep track of cash flow is with a cash flow chart that shows all of these elements in a quick, easy to read format.
If you put together one of these charts each month at year’s end you’ll have an overall picture of your businesses financial records.
This will prepare you to handle any sudden, unexpected expenses that come up and also let you make any necessary adjustments to your financial practices to help your business run more smoothly.
Advantages of a Cash Flow Analysis
The biggest advantage of doing a cash flow analysis for a small business is to help you better manage your money.
There are many ways that you can take your business profits and make them work for you, including paying off debt, investing, or building an emergency cash fund.
You might also opt to spend a little for capital improvements to make your surroundings more appealing or efficient, or increasing payroll to keep your employees satisfied and productive, both of which can ultimately help to increase profits.
So, as you can see, the simple task of regularly analyzing your cash flow can have a huge impact on your small business.
It is absolutely crucial to ensuring that your business maximizes profits and prevents any unnecessary expenses that can chip away at those profits.
Spending the few minutes it takes each month to stay on top of your cash flow could help to put more money in your pocket rather than going out to lenders or business associates. And that’s the bottom line for every business.