Accounting Treatment Of Bank Overdraft In Cash Flow Statement How Good Cash Flow Management Can Help Your Business

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How Good Cash Flow Management Can Help Your Business

For a business, be it a startup business or an established business cash acts as their lifeline; This is one aspect that allows the business to survive. The amount of cash a business has is often indicative of the health of the business. A business, especially a start-up business can survive for a while without sales or profits but without cash it will fail.

To give your business the best possible chance you need to have adequate control over the cash flow in and out of your business. You need to have more cash flowing into your business than out of it but you need to have a good understanding of the cashflow in your business. If you’re looking to expand or borrow some extra cash, you need to have a good idea of ​​your cashflow. It’s a good idea to keep your receipts to help with this estimation of your cashflow as they will show examples of some of your expenses.

An important point to remember is the difference between cash and profit. A business needs to produce and deliver goods or services to customers before you can actually make a profit, so if you don’t have the cash to do this, you technically won’t have the money to run the business. . If you need more proof of this, just look at the facts; The reason most businesses fail is because of poor cash management that can’t afford to keep the business going, and low cash flow is the reason why the majority of start-up businesses don’t make it past their first year.

Some examples of cashflow coming into your business include:

o Payment for goods/services from your customers

o Any bank loans you have taken

o Interest you collect on savings and investments

o Increased bank overdraft or debt

Some examples of cash outflows from your business include:

o Purchase of any stock, raw materials or tools required by your business

o Your employee wages, property rent and all your day-to-day operating expenses

o Any repayment of debt owed to your business

o Any dividend payments

o Income tax, corporation tax, VAT and other taxes

o Reduced overdraft facility

In order for your business to have good cash flow you need to ensure that your revenue pattern and your business spending habits ensure that you have cash available and are able to pay your bills on time. Cashflow depends on the amount of money coming in and out of the business each week and month.

To help you with your cashflow management it’s a good idea to keep an up-to-date record of all your cash so you can see exactly what’s coming in and going out of your business. By doing this you can find ways to potentially improve your business cash flow.

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