The Importance of Cash Flow

When owning and managing a business, the flow of money is so critical in enabling the owner to run their business effectively.

A number of factors can affect that cash flow, including:

• Capital needed to buy or replace capital equipment or drive growth

• Time taken to covert revenue into cash

• Managing costs of the business

• Talented staff needed to run the business

• Personal drawings and investments

In predicting your future cash flow for an established business, you can use your previous 12 month experience as a guide.

A good accounting system will help identify these flows by knowing how your sales and expenses are converted to cash in your bank account. Then, for all businesses including start-ups, you can predict inflows and outflows for the next year. You can break this down into quarters, then months.

Once you have identified any problems, you can put strategies in place to reduce these issues.

From there, you can identify any excess cash flows. By looking at what drives them, you can plan to target the maximising of positive cash flows.

Using the excess cash flows, effectively, can help meet your business needs and personal goals.

Get in touch with Peter J Anderson on further assistance with cash flow, or other planning matters.