Find Success In A Solid Cash Flow

Not only is your cash flow a powerful management and accountability tool, it’s your business’s lifeline. So this year, as you seek to protect your business’s liquidity and future growth, make the management of your business’s cash flow your priority.

Better Management In 13 Weeks

A 13-week cash flow projection will provide you and your stakeholders with a detailed representation of your business’s well-being, as well as empower your management team to become more accountable in your business’s success. Once you have a better idea as to how much money is going out and coming in (and why), you will be positioned to make better decisions and develop timely and attainable goals.

Additionally, when you are responsible for managing cash that was acquired from an external source, your cash flow projection becomes a way to provide stakeholders with the information they need to monitor their investment. For example, to ensure that you are in compliance with the terms of their investment, a bank may require you to provide quarterly financial information.

Strength In Numbers

To generate a strong projection, research and include data from a variety of sources.

  • Analyze your accounts receivables to determine ways to quickly turn them in to cash or to better manage your sales and improve profitability.
  • Review your current inventory levels. Excess inventory is cash that has already been spent and is not being used effectively, therefore take the time to review and segregate inventory that is old or obsolete and then consider whether it can still be used to generate cash.
  • Review and organize your accounts payable, which will help you manage when payments are made.
  • Look at your non-core assets and determine how much money you are spending to offer them. Are they viable? Do they align with your current client base? If not, maybe you should discontinue the offering in favor of an offering or initiative that produces greater revenue for your business.

Remain Realistic

A proper cash flow projection is based on facts – not on what you expect (or hope) will happen. Your first step should be to look at your company’s historical trends, current initiatives and any internal and external factors that may impact the financial security of your business, including past, present and future billing and payment patterns. Also make sure that the cash your business needs is based on fixed and recurring costs. From there, you can then estimate variable costs and expected sales.

Once you have compiled your historical data and have put your cash flow projection in to action, update your data with current figures and information weekly, which is important if you intend on using your cash flow projection as a management tool. With regular maintenance, your projection will become an accurate representation of your business’s financial wellness while providing you with a framework for generating short- and long-term success.

Would you like to have an accurate cash flow projection readily available to help you make critical business decisions but need help setting getting started? Email Rea & Associates for more information.

By Ben Froese, CPA (Wooster office)