Understanding your business cash flow

A short guide to business cashflow management

The difference between profit and cash flow

Cash Flow mainly represents the balance in your bank account and as such, it is possible for your cash flow to be on zero and still have turned a profit. For example, a business that makes a 15% profit on the sale of each item, but because the expenses are high, the cash flow will be low or negative. Also, things like pending accounts receivables make a cash flow statement an unideal way of tracking your profit.

Tips for Managing Your Cash Flow

In order to avoid cash flow emergencies, make sure to follow these tips to better manage cash flow. The first thing to do is to ensure that your inventory is controlled. If you’re a physical product-based business, having too much inventory means you have less cash on hand. So make sure you have an average amount. Next, set up a collection s schedule to collect due receivables. Also, run a regular cash flow report. This could be monthly to show how much you received and paid out. With this cash flow statement, you can identify unprofitable business relations and make decisions to end them.

Using a Cash Flow Statement

If you want to keep track of your business’ cash flow, the best way to do that is to run a cash flow report. The main categories found in a cash flow statement are Operating activities, Investing activities, and Financing activities of a company and are organized respectively.



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