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Last updated: Oct. 17, 2018
Every business needs to properly manage the flow of money through its organization and daily management of this process is essential. To gain insight into this flow of funds, you’ve got to have a fast method to break down a cash flow statement thoroughly.
The cash flow calculator can get you to that goal and shed light on where your company is spending too little or too much. Here are 10 areas it can help you focus on.
#1: Assess Current Assets
Assets have value and include items such as property and equipment. For cash flow purposes, they’re hard assets, meaning you can’t liquidate them quickly to meet financial needs. Still, cash reserves and savings are a secure base that provides liquidity.
#2: Assess Liabilities
Liabilities include all aspects of debt your company owes: credit debt, mortgage debt, vendor-based debt and so on. The goal is always to have less debt while being aware that paying down debt too fast can make for cash flow shortages.
#3: Long-term Assets
Some assets and debts are long-term, like mortgages and physical property loans. Equipment that’s paid for and other hard assets are also a component of a cash flow statement because of the value they carry. These provide a strong level of protection for businesses, especially if there’s a need to borrow against them in the future.
#4: Sales
In many companies, sales change week-to-week or season-to-season, making a simple view of sales difficult. However, on a weekly and monthly basis, tracking your sales is obviously crucial. When sales increase, this can create more liquidity in cash flow but, of course, you have to balance this against the slower periods.
#5: Receivables
Many companies have to balance receivables very carefully to ensure proper cash flow. In short, this is a loan given to a company or customer from your business. Receivables should be understood in terms of when they’re due and when they’re paid. Those with 90-day terms can make cash flow difficult for most companies.
#6: Other Income Sources
Companies with other sources of income need to monitor and track it just as accurately. Income from any source should be a component of your cash flow sales sheet. To know what you have access to, you should track the frequency, amount and reason for any income.
#7: Cost of Goods Sold
Another key area of cash flow management is keeping the cost of goods sold in line with expectations. This is the total amount paid for raw materials, supplies and labour to produce the product in a given period of time. Keeping this figure low can really help increase cash flow.
#8: Operating Expenses
Another area with a lot of versatility and flexibility is operating expenses. These are the costs to run your business day-in and day-out. In the simplest form, fewer operating expenses means improving cash flow. Most businesses can tweak expenses a little to improve cash flow numbers, but it’s also important for long-term growth and health to make sure everything runs efficiently from labour right down to cleaning supplies.
#9: Interest Expense
Interest on various kinds of loans, credit spending and financing tends to be a fixed cost, with little leeway for reduction. Still, it unmistakably has an impact on your cash flow. Companies aiming to improve on this will want to consider ways to adjust and rework interest to ensure it’s as low as possible. Refinancing high-interest rate debt could be one method.
#10: Inventory Management
Cash flow can get crippled when you’re carrying too much inventory for your actual needs. On the other hand, running out of product when there are buying customers available can obviously hamper sales. A key component of the cash flow management process is to ensure you have inventory management in place to meet goals with precision. That in turn frees up money for day to day operations.
The key in each one of these figures is to understand just how flexible they can be. Using the cash flow calculator, it’s possible to see how even small and simple changes in these figures can greatly increase or decrease your available cash flow.
Consider how much of a difference a few changes here can make to having the cash on hand to manage vendors, materials and payroll. With these tools, you can streamline your operations and enjoy greater peace of mind.
We’re always happy to provide insight and management tips to help you make the most of your finances. Contact us today and let us help your business find its full potential.
Click here to access the cash flow calculator.
