Cash is the lifeblood of every company. Cash determines whether a company can pay its bills and meet its obligations. Cash moves in and out of a company through cash-flow.
If you are starting up a business you need to know how and when cash comes in and goes out of your company, this is critical to the financial stability, and ultimately to your ability to remain economically capable of living and surviving.
Cash does not come in steady flows. most cash receipts fluctuate from day to day, and from season to season. Budgets give a stationary snapshot of how much cash you are expecting, and where you expect to spend it. Cash-flow and its analysis are dynamic, in that it gives a motion picture view of what is happening in your business from a cash standpoint. Most importantly, it predicts what is going to happen in the future so you can plan and prepare for that situation.
Cash-flow forecasting involves the preparation of detailed revenue and expenditure items as they are actually being planned to occur. Documenting receipts of a revenue, or payment of an expense in the expected time period in which it is expected to occur. Therefore, if you are selling goods or services on credit, the amount would be put into the actual month in which the receivable is due.
At this point you can determine if the cash requirements for each period are consistent with the cash that is available for that period. If there is insufficient funds available, there are many options as to the resolution of the problem.
Analysis:
- Measure the flow of money in and out of your business
- Know when to spend
- Know when to reduce spending
- Know when more money is needed
- Forecast your monthly sales, expenses, and cash in the bank
- Measure your actual monthly sales and expenses against your forecasting
- Find out how much cash is needed for the operation of your business
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Marsha Anderson wishing you a profitable week ahead!
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