A Complete Guide to Planning Your Cash Flow

Published April 29, 2021
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How much financing is available to your business this year? Do you have enough cash in hand to bear operational expenses? From where is the company earning, and where will it spend?

These are some of the basic questions every SME owner has in mind about their cash flow availability and firm’s liquidity. Planning and managing business cash flows isn’t as daunting as it seems if you’re unequipped with the necessary tools and techniques to excel at the task. Previously, businesses at every scale, small or large, had to employ expert accountants and finance officers to carry out basic accounting functions like cash flow analysis and resource management.

Thanks to modern technology, you can now hire robust cloud hosting service providers to help you use cutting-edge accounting software such as QuickBooks.

Recommended ReadHow QuickBooks Can Power Growth in Your Small Business

Let’s delve deeper and understand how business cash flow works and what you can do to stay on top of the company’s finances in 2021.

What is Cash Flow?

Cash flow is the amount of money and cash parallels rolling in and out of your company during a specific period. It designates whether your business can pay its existing obligations and defines your business’s financial strength.

Step One to Achieving Cash Flow Success: Efficacious Budgeting

A cash flow budget is an approximation of all money proceeds and cash expenses that are predicted to occur through a definite span. Estimations can be made once a month, bimonthly, or quarterly and comprise operating, variable, and fixed expenditures.

Cash flow planning looks only at cash inflows and outflows, not net revenue or lucrativeness.

A cash flow budget is a valuable organizational instrument because it:

  • Helps you optimize business performance using the correct strategies
  • Enables you to test new developments, expansion opportunities, or clientele relationships using extra cash-in-hand
  • Equips you with enough details and insights required for successful expense/income tracking
  • Tests your business modules and projects to determine whether you’ll be able to meet the desired goals for the year
  • Projects how much money will come and go out of your biz
  • Helps you understand the financial health of your company by communicating liabilities and cash-based assets

Recommended Read: Solving Accounting Challenges with Modern Solutions

4 Steps to Planning Your Business Cash Flow

Here’s how you can stay ahead of your competitors by allocating your cash to the right places:

1. Retrieve and Gather Prior Cash Flow Statements

To plan your next business cash flow, looking at the previous one is imperative. This is fairly easy if you have QuickBooks Accounting software deployed at your organization. Robust and efficient accounting tools can retrieve, consolidate, and present previous financial statements for quicker, easier, and hassle-free cash flow planning.



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Recommended Read: A Guide to Industry-Specific Editions of QuickBooks 

2. Analyzing the Statement

To analyze a cash flow statement, it’s important to understand what every numerical value means. A cash flow statement gives you an all-encompassing image of your business’s monetary shape. Just as keeping an eye on your private account’s credit tells you whether you can afford to buy a car or not, your business cash flow tells you whether you can manage payroll, expenses, and fulfillment procedures using the cash in hand.

At large, a cash flow statement is also helpful in determining whether your company is ready to expand operations or not.

Here’s a short rundown of the elements you’ll come across in business cash flow statements:

Incoming: Cash-based or Cash-Equivalent Assets

Your company generates revenue from various resources, which are all a part of the incoming cash/assets part of the cash flow statement. Some common cash inlays include:

  • Product sales proceeds
  • Service charges proceeds
  • Loan proceeds
  • Outside investment earnings
  • Proceeds for asset sales

Outgoing: Cash-based or Cash-Equivalent Expenses

So where does your business’ money go? Here’s a list of possible outlays:

  • Manufacturing costs
  • Production, packaging, and fulfillment costs
  • Overheads/operational costs
  • Debt servicing
  • Purchasing assets for the company

Knowing how much cash your business has at the start of a period is beneficial for efficient decision-making, resource allocation, and expense tracking. It also enables you to contrast the projected data with the real one. Automate your practice to maintain cost efficiency instead of getting this accounting task done by an accountant or outsourcing your accounting department.

QuickBooks is an efficient business tool that can generate, automate, consolidate, and produce error-free, accurate cash flow statements, analyses, and projections at your fingertips.

3. Keep an Eye on Profitability

Cash flow analysis or planning helps you track the profitability and liquidity of your company. Check whether your products or services are priced properly if your target market is willing to pay the amount charged, or if there are any inefficiencies in the costing module.

However, don’t focus on profits entirely. Maintain a balanced outlook of expenses and incomes. Try to identify and maintain a breakeven point before shooting for bigger goals. This is how you can excel at cash flow planning and forecasting to reach the desired results.

4. Maintain a Cash Backup

Establish a savings reserve as soon as your business starts making enough cash. This is one of the most crucial aspects of cash flow management that many biz owners often forget. Establishing a cash reserve allows you to avoid pitfalls in the long term and overcome shortfalls if they happen unexpectedly in the middle of a fiscal year.

A cash reserve helps you work on your best-laid plans. Let’s face it, every business move requires some financial investment, and without extra cash in hand, you can’t make the most of opportunities that knock on your door from time to time.

A Piece of Advice: Don’t focus on investing in expensive, long-term assets if your business is in the early stages of growth and development. Rather take advantage of financing or leasing options such as SBA loans for SMEs. This helps you maintain a positive cash flow and reduce expenses as your business flourishes.

Recommended Read: Smart Ways to Organize Your Small Business Accounting

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