Cash Flow Calender
For a small business owner, performing a cash flow analysis
regularly is essential for success. After all, running short of cash is one of
the most common causes of small business failure. The good news: Regular
analysis of your cash flow can help you avoid this pitfall and manage your
business more effectively.
What is a cash flow
analysis?
You perform a cash flow analysis using a cash flow statement. This
is a financial statement that records how money flows into and out of your
business during a specific pre-determined period of
time.
Why is a cash flow analysis
important?
A cash flow analysis gives you a well-rounded picture of your
business’s financial health. Regularly analyzing your business cash flow will
tell you whether you’ll be able to make payroll, pay your suppliers, buy the
materials to fulfill orders or carry out expansion
plans.
If your cash flow analysis shows you’re running short of cash, you
can plan ways to cut costs, obtain short-term financing, or take steps to
accelerate income. If your cash flow analysis shows you have extra cash on hand,
consider whether to invest it in new equipment or save for future slow
periods.
Keep in mind that having a lot of cash on hand doesn’t necessarily
mean your business is profitable—that’s determined by your profit margins.
Conversely, even a business with strong profit margins can get into financial
trouble if it doesn’t have the cash on hand to pay the bills. And a business
that has a lot of debt at one point in time can still be financially strong as
long as the owner knows projected cash flow can be relied on to cover the
debts.
How do I conduct a cash flow
analysis?
It’s a good idea to perform a cash flow analysis at least once a
month, but you can certainly do so more often. If you are in a highly volatile
industry or experiencing cash issues, you may want to do a cash flow analysis
weekly or even daily. Project your cash flow out for whatever time frame you
choose. Four to six weeks is a good starting
point.
If you are using Mr. Accounting, our Cash Flow Calendar allows you
to view your cash in and out monthly. This intelligent application also allows
you to track your customer and supplier due in an easier and more effective way.
From here, you can forecast the monthly cash balance of your
company and see whether your company is short of cash or having too much cash in
hand. With this you can perform business planning in order to ensure that your
business can run smoothly.
Cash Flow Calendar as one of the applications in
Mr. Accounting Version 10.
You can track your cash in/ out as well as your
customer/ supplier due here.
You can see your total cash in and out as well
as total net cash flow per month in this
calendar.
You can see your supplier and customer due per
month in this calendar.
Once I’ve conducted a cash flow analysis, what should I do with the
information?
The more frequently you conduct a cash flow analysis,
and the longer you do so, the more you’ll learn from it, as you’ll begin to see
patterns. For example, you might notice that your cash flow is positive most of
the time, but regularly becomes negative during the third week of every month.
Unfortunately, you also notice that most of your business’s bills are due the
fourth week of the month. This means you’re often caught short of cash, which is
causing late payments and hurting your business credit rating and reputation
with suppliers.
By examining your cash flow statement, you can figure
out possible ways to remedy the problem. To cover the shortfall, you can either
cut your costs or increase your income. Ideas for accomplishing these might
include:
n Adjust staffing during the month to decrease
payroll
n Buy less inventory if you’re adequately
stocked
n Paying vendors later (still staying within your due
dates, of course)
n Email a special offer to bring in more customers and
increase sales
n Reach out to late-paying customers to speed up
payments
n Raising prices
n Finding a source of short-term working capital to get you back in
the black
Creating a cash flow analysis might seem intimidating at first, but
once you’ve done it a few times, you’ll wonder how you ever ran your business
without it.
Credit: Rieva Lesonsky, Fundera