Running a business is hard work, and much of the time you are so focused on making ends meet, and starting to grow your business from the floor upwards, that it can take a huge up most of your time. It’s no wonder in this case that most small business owners feel quite cut off from those around them.
The thing is, if you understand what cash flow is and how to manage it, you can not only take back some of your time, but you can allow your business to grow and flourish without as much effort too.
Of course, business success requires a little luck, but planning and understanding how everything works is a huge part of the story too. Managing your cash flow is one of those things you need to understand.
What Exactly is Cash Flow?
Cash flow is the cash which moves into your business every month, and the money which flows out of it too. You will receive cash from sales and services, e.g. from your clients and customers, and then you will need to pay out too, for rent, supplies, salaries, tax, etc. You are in a good situation, called positive cash flow, when you have more money flowing into the business than flowing out.
Of course, on the other hand you have a negative cash flow if you have more money flowing out of your business than into it. During times when you are positive, it’s a good idea to put a little money aside, to cover you when negative times occur, which they will on occasion.
The breakeven point is when a business has the same amount of money coming in, as going out. It’s vital that you know your breakeven point, because it tells you the amount of sales or revenue you need to make in order to cover your expenses. This is the aim for survival, and anything over is a profit.
The Importance of Effective Bookkeeping
Understand cash flow is about keeping records and ensuring that you know your breakeven point. Not only is effective and accurate bookkeeping vital for your tax and accounts, but it also keeps you ahead of the game, so you know where you are with your finances, and you can flag up any potential issues ahead of time. Being prepared is vital.
There are many ways to keep records, either the manual way, or online. An accountant will do it all for you, but this is going to cost you extra money, and that’s possibly cash you can’t afford at the very start of setting up your business. As your business grows, accountancy services are something you should invest in.
Online bookkeeping methods and software packages will allow you to keep the accurate and appropriate records you need, while also storing the hard copies of documents which are vital or your taxes too.
By being aware of your cash flow and by keeping accurate records, you can ensure your business’ success, and growth in the future.
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- Written by: Jag Bath