Cash Flow and its management

Cash Flow and its management

 

Introduction

There is a certain amount of cash which the business holds in starting of the accounting year and certain amount which the business was able to have in hands at the end of the accounting year. The difference between these two kinds of opening balance and closing balance is termed as cash flows of the company. To understand in simple terms we will say money that comes into business and money that goes out from business is known as cash flow.

Cash flow is positive if the closing balance of the business is higher than its opening balance. Cash flows will be negative when the closing balance is less than its opening balance.

Cash flows will show an increase

  1. By selling more and more goods and services
  2. By selling an asset
  3. By increasing the selling price
  4. By reducing cost of the company
  5. By bringing in more forms of equity.

Nowadays a number of people are complaining about their company’s cash flow. To have a good cash flow for the business its proper management is very important. Proper management and forecasting is a key aspect to avoid liquidity crises. Cash flow serves as a life blood for all business. To avoid business from struggling the owner should keep a check on its cash flow to know that in future any amount of cash will leave or not

Business should make sure that it is regularly and timely paying to its suppliers as well as employees. If suppliers don’t receive payment on time they will stop supplying raw material to business and if employees will not receive salary on time then how will business work. These points should be kept in the eyes of the owner for better functioning.

Tips to manage cash flow

  1. Improve your receivables
  2. Manage your payables
  3. Maintain some cash reserve for future purposes.
  4. Determine your break-even point. Every company must know when it will earn the profit. This will help in the management of the cash flows.
  5. Encourage customers to pay up faster- If your customers will pay on time your cash balance will remain positive most of the time. Set rules regarding credit sales and new discounts should be offered on cash sales.
  6. Have a cash flow monitor- Like every classroom had a monitor similarly every company should have a cash flow monitor who will keep a regular check on cash flows of the company?
  7. Always know your number- Every company should be prepared with its bookkeeping accounts as that will help in the cases of less fraud. Proper accounts help companies in the long run.
  8. Be prepared- Every person should be prepared for both positive circumstances and negative circumstances. No company can earn a profit without experience certain amount of loss. For situations of losses to be prepared to face it and you will earn good cash flow also.

These tips should be kept in mind by every individual who is part of any company. Just being the owner of the company is not everything you have to make your company stand on the top and you will able to achieve it by having good cash flows of the company.


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