Cash flow is basically the money that comes in and out of the business, in the form of income and expenses.
The main purpose of cash flow planning is to assist business owners in setting goals in relation to future expenditures in order that they have the amount needed for the expenditure when it is required.
Before you undertake any type of investment, it is important that you complete a cash flow plan – it is only after this is done that you will be able to see how you are currently coping financially, and therefore, know whether or not you’re able to make an investment in the near future without jeopardising your financial stability.
Using cash flow management and forecasting, you can help steady cash flow activity, allowing you to meet your commitments as they fall due and begin planning for spending money in the future on items such as property, plant, and equipment; you will then be able to see when money will be required for investing.
The most common way to carry out this forecast is by approximating cash payments and cash receipts that are expected for the period.
Cash payments refers to money being paid by, or going out of the business. There are many ways and reasons that cash may be distributed. Usually internal controls are most effective over cash payments when they are completed using electronic transfer or cheque – cash is much harder to track. There are several steps which both the owner/s of the business and bookkeeper have a duty to maintain in order to make sure there is sufficient controls over cash payments.
Cash receipts are any monies that are coming into, or are received by the business. For most businesses cash receipts can come from a variety of sources, with the two most common being: Over the counter sales, and receipts that come in the mail as cheques from debtors. There are several steps which both the owner/s of the business and bookkeeper have a duty to maintain in order to make sure there is sufficient controls over cash receipts.
The flow chart below shows a simplified cash flow management procedure.
Are you looking for an accountant to help you with cash flow?
At The Quinn Group we do much more than just ‘crunch the numbers’ – we are here to help you grow your business. Our highly trained accountants and bookkeepers aim to add value every step of the way by providing strategies to reduce expenses, increase revenue and minimise taxation. If you would like to speak to one of our accountants about improving your business cash flow, contact us online or call 02 9223 9166.