When business owners hear the words, ‘Cash Flow’ they aren’t always 100% sure what the term means.
Cash flow relates to the net amount of money being transferred in and out of your business bank accounts. Cash being any type of transaction which brings money in and out of your business, it doesn’t necessarily mean hard cash that you can physically see and feel.
Cash received into a business is known as income or revenue whilst the outgoings can also be referred to as costs or expenses.
The more positive your cash flow is the better your credibility will be for receiving funding from investors or credit such as loans. A positive cash flow means that your balance is in credit and on the increase meaning you have funds readily available to spend or invest. A negative cash flow is when your balance is plummeting, when below zero this is also known as being overdrawn. This is not healthy for any business, and you should always try your best to stay out of the red.
Cash Flow is different to profit. Your profit is the amount of money remaining once all costs have been deducted from your revenue. If the costs are less than the amount of money you have made then this means you have made a profit and your business is in a good financial position. A business can be making a profit, but this doesn’t necessarily mean their cash flow is a positive one. Money may be tied up in assets with no readily available cash, but it’s your cash flow that will be detrimental to your business especially when it comes to investors.
This is why having a bookkeeper for your business is vital. As a bookkeeper it’s my job to help you achieve a better cash flow forecast in your business. I will monitor the daily incoming and outgoing transactions and help you to cut costs on those transactions which either aren’t essential or I know you can save money on. By monitoring your cash flow regularly it will help you to make important business decisions and in a timely manner, which can be pivotal to your business.