As a freelancer or small business owner, you may wonder how to improve your financial health and get through the dry months. Well, organizing small business cashflow may be the answer. But what does cash flow mean in a business? This article will explain all about it. In the following paragraphs, you will learn why uncontrolled income hurts your business and what are the reasons you should do a cash flow plan.
What is a Cash Flow?
Cash flow definition means the total profit and expense for a selected period. It includes both cash and cash equivalents. What is cash flow in business? Depending on its functions, we have highlighted:
1. Free CF. It is the total amount of free cash on a company’s current balance sheet.
Calculate it using the formula: (Operating Expenses + Net Income) – (capital expenditures + changes in estimated capital)
2. Operating CF. It is necessary to estimate your average turnover accurately.
To calculate OCF, use the formula: (Operating Income + Deductions) – (Change in Working Capital + Taxes)
3. CF Forecast. With this metric, a business can plan its profits and set growth goals.
Get the CFF using the formula: (initial funds + projected profits – projected expenses)
Experts also distinguish between positive and negative cash flow. With a positive turnover, the company earns more than investments and expenses. Conversely, with a negative turnover, business expenses outweigh earnings. In other words, companies with positive cash flow are profitable. Like profits, the amount of cash flow determines the viability of a business. The higher it is, the easier it is for a company to plan for growth, hire new employees, and expand. Therefore, it is critical for a business to be profitable and have a high transaction flow.
Cash Flow in Small Business
We hope you got a clear answer to the question, “What does cash flow mean?”. Now let’s turn to ways to manage it. To monitor financial turnover, a company must keep strict accounts payable and accounts receivable records. These include all transactions that are associated with receiving fees and paying suppliers.
Invoice Maker by Saldo Apps will help small businesses reduce accounting time and establish a smooth cash flow. The software allows you to generate professional invoices, estimate current earnings, and forecast revenue. When you send an invoice, it’s automatically logged into the database. From then on, you can track its status and see how many customers have sent payments. You can also attach an instant payment form to your PDF invoice for convenience. Looking for a different format? Try the ready-made invoice template excel or fill out the invoice template word.
How Does Managing Your Cash Flow Affect Your Future?
Managing your corporate finances is essential for the company’s growth. Below we’ve outlined some reasons why cashflow is important.
- Make plans and set growth goals
- Understand your spending
- Protect Business Relationships
- Fulfill financial agreements with customers and suppliers
- Determine the ideal period for expansion
- Survive crises and months of downtime
As you can see, companies should seriously consider the importance of cash flow. It is the foundation of business success. Every entrepreneur goes through dry periods and crises. Managing cash flow helps you get through difficulties with minimal financial risk. It also gives a better understanding of when to hold on to your savings and when to invest.
If you haven’t spent enough time on the financial health of your business so far, now is the time. Armed with the right software, you can easily track cash flow on your own.