What is cash flow?
Cash flow simply means the amount of money coming into the business and the amount going out. As part of our accounting and bookkeeping service, we have to keep an eye on our Cash Flow summarizes how funds moved in and out of our business.
So, we know that Cash flow is an integral part of accounting compliance and bookkeeping service, so why exactly is Cash Flow important for your business? Read on to find out more.
- Verifying the profitability of the business
Cash Flow helps the management to have an idea about the liquidity & profitability position of the business. Liquidity simply means the ability to pay the obligation as soon as it becomes due. Since Cash Flow shows us the current cash position of a firm when making the payment, it helps in verifying the liquidity position and the profitability of the business
2. Easy management of cash
If the cash flow is accurately and consistently scrutinized, it becomes easier for a business to manage cash. Hence, a business can take suitable decisions related to spending cash on operations or investing it to enjoy healthy returns.
3. Helps in better planning and decision making
Cash Flow helps us know the exact amount of funds readily available at any given moment. This helps the management understand how much cash is generated from internal sources and if outside sources of cash procurement are required or not, which invariably leads to better decision-making.
4. Important to protect business relationships
Cash Flow helps us in analyzing and setting up payment schedules to ensure that finances are available to pay suppliers. This in turn helps you to maintain business relations and won’t affect your reputation, as a single delay payment to any vendor and our reputation in the market takes a hit. This would also enable your business to get better terms from your vendors.
5. Enables business expansion
Growth, in business, is an exciting time and will lead to increased revenue. But it also means that expenses will increase, such as purchasing stocks, renting premises, hiring employees, acquiring assets for the business, etc. If we don’t have funds to meet the increased costs, it will lead to problems. Hence, a regular cash flow assessment shows how much cash is positive and can be used in the growth, or if outside sources to procure funds need to be looked at. If we can manage our cash flow effectively, we’ll know when to expand.
In conclusion, we can say that Cash Flow is an important part of accounting & bookkeeping services for all sizes of businesses. A U.S bank study found that 82% of businesses that fail do so because they have cash flow issues. We have to make sure to use the right tools to ensure it doesn’t happen to us. One of those tools is a periodically updated Cash Flow Statement. An accomplished accounting firm can be employed to assist with effective cash flow management.
