How to manage your company's cash flow? This subject is one of the key pillars to succeed with your business. And many professionals fail to do this right, which is quite dangerous and one of the main reasons why companies close or go bankrupt.
Therefore, to ensure that your company has a healthy, stable and responsible life, here we separate 9 mandatory and powerful pillars to manage your company's cash flow in the right and solid way. And so, having a very strong foundation to make your business grow every day. Both in the short, medium and long term.
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In order for the pillars that we will show here to make a lot of sense, first you need to understand well what cash flow is. In short, it serves as a financial management tool. Which projects for future periods all the inflows and outflows of financial resources of the company.
It is the control of accounts payable and receivable. With this, it indicates how the cash balance will be for the projected period. In finance, cash flow refers to the flow of cash in the company's cash.
That is, the amount of cash received and spent by a company during a defined period of time. In addition, it will show the control of the activities of the company's operational cycle. In other words, they are all activities of purchase and sale of goods and services of the business in the short term and their respective payments and receipts.
In this way, you will have more effective control and management. Based on numbers that will help you make decisions in the present period, but also for the future. So, if you want to go deeper into Cash Flow, which we highly recommend, watch our practical video.
To do so, just click on this button above or on the link in the description. Now, if you already know cash flow well, let's go to the 9 mandatory pillars to manage your company's cash flow. So let's go!
1. DETERMINE THE CASH FLOW PERIOD First, determine the time frame for controlling your cash flow. It can be daily, weekly, fortnightly or monthly, half-yearly, for example.
Varying according to the specific needs of each company. 2. RECORD AND CATEGORIZE ALL FINANCIAL TRANSACTIONS Regardless of the amount spent or received, record all movements in the cash flow.
In this way, you will be able to organize your finances properly, have access to each transaction whenever necessary and avoid wasting money. Here, it is essential to separate each transaction into different categories, which will make it easier to identify the main types of expenses and income. And to simplify these records, it is recommended to invest in an efficient financial management platform .
Including, currently there are several management systems that help a lot in business management. Like ERPs, which are management systems that allow easy, integrated and reliable access to a company's data. 3.
SEPARATE ENTRY AND OUTLETS Basically, entries represent the addition of money to your own business, which is usually built through your sales. On the other hand, the outputs concern the financial obligations of the organization. That is, your debts to suppliers, employees and financial institutions.
In short, these are the expenses that the company has. You need to understand these two points very well because they will determine the success of your company's cash flow. Then record all your expenses in your company's cash flow.
Even the most insignificant ones. This can be done separately by month or even by day, for example. In the same way, also list all the capital contributions in your company, including the most insignificant ones as well.
In the same way as we talked about the exits. 4. CONTROL YOUR STOCK You need to buy materials and stock before to start sales.
And for that, an initial investment is necessary, not least because its suppliers need to be paid. And here's a simple rule: all the money you have in stock is money that is no longer in your account to be spent/invested in other things. Therefore, calculate well how much to invest in inventory so as not to leave money standing on the shelves, literally.
5. WORK THE GIRO CAPITAL In short, it is the company's current assets to cover fixed and variable costs and expenses. That is, they are the resources that the company has to cover its expenses and costs.
Regardless of whether it is generating profit or receiving funds from other sources. It is the money that will ensure that the company continues to survive and function while the investments have not yet generated a return. In other words, survive while the money does not enter the company's account.
Working capital represents how much the business can make available to pay and settle its obligations and bills. Consequently, this means that working capital is directly linked to the financial health of the company. And that's why he's extremely important to the success of your own business.
6. IDENTIFY BUSINESS RISKS AND PREPARE IN ADVANCE There are many risks involved in running a business. And serious challenges are to be expected at some point in the future.
You need to consider several scenarios, such as: • What if that big order suddenly arrives? • What if a large order is cancelled? ” • “What if this important client disappears and he still owes me money?
This type of risk analysis can become part of your cash flow budgeting process. Try this simple method: if you're using a spreadsheet to enter cash entries, just reflect a hypothetical situation by adding or deleting the inflows. The repercussions in the coming weeks and months should be immediately visible.
So you can consider what you would do if the event occurred. These examples above are just a few types of threats. There are many other aspects you should account for when doing cash flow, okay ?
7. PLAN WELL WHEN YOU WILL RECEIVE THE MONEY FROM YOUR SALES A key point is knowing how to control and plan when you will receive the money from your sales. Mainly because your own business will have bills to pay (such as inputs/raw materials, electricity, employees, among others).
This way, you will have control of how much you can invest at any given time. As well as negotiating payment terms with customers and suppliers. Knowing how to program this cash flow is essential for the success of your business.
8. CASH FLOW IS NOT INTUITIVE Don't try to calculate cash flow in your head. There are many numbers and factors that will confuse your memory, believe me.
For example: many companies need inventory. And stock means, in a more superficial way, money invested and sitting on your shelves. That is, it has not yet become a sale.
Another example is selling on credit. When making a sale on credit, that money has not yet fallen into your cash register. Therefore, this money does not yet exist.
It will only be real after it actually enters your account. These are two basic examples of factors that need to be considered in cash flow , but many overlook this calculation of dates when money enters and leaves the company's account. And that is a very dangerous mistake.
Therefore, have a person responsible for doing this in a detailed way, who really understands this flow. 9. TRACK YOUR CASH FLOW DAILY Don't go into automatic mode.
Keep track of your cash flow at all times and know at all times how much money you have in your cash register. And make projections of your cash flow for as many dates as you deem necessary. Don't do the math in your head, as we said earlier.
Set up a spreadsheet, write it on paper, hire a system or a professional to do the cash flow. Do what you think is best to organize your cash flow, agreed? These are the mandatory pillars to manage your company's cash flow.
They are not the only ones, but they will certainly provide your business with a solid foundation to have a well-consistent, planned and organized financial control. So, if you have any tips that we don't talk about here, write them in the comments and share them with us! And there?
Did you like this video? So, if you can, click on the “Thanks” button below and help our channel to continue producing and improving videos and content of this type for you. And just to recap what we talked about: 1.
DETERMINE THE CASH FLOW PERIOD 2. RECORD AND CATEGORIZE ALL FINANCIAL TRANSACTIONS 3. SEPARATE INCOMES AND OUTPUTS 4.
CONTROL YOUR INVENTORY 5. WORK WITH WORKING CAPITAL 6. IDENTIFY RISKS BUSINESS AND PREPARE IN ADVANCE 7.
PLAN WELL WHEN YOU WILL RECEIVE MONEY FROM YOUR SALES 8. CASH FLOW IS NOT INTUITIVE 9. TRACK YOUR CASH FLOW DAILY We hope you enjoyed it!
And if you want to learn more about how to set up and manage your own business, visit our YouTube channel where we have several videos on this subject, okay? And if you liked it, share this video with your friends and family to help them too! If you want to prepare even more, download our free e-book now with the 11 key questions to find out if you are ready to open your own business or not.
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