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what is cash flow

What is Cash flow – A Basic Guide!

27/10/2021Business , Business Growth Ideas , Finance

It is important for every company to maintain a good cash flow(CF). If you do not have a good cash flow, it would be difficult to purchase materials, pay salaries, and settle bills. So, when running your company, it is the most crucial thing to look into. Therefore, this blog will let you know:

  • what is cash flow?
  • How to work it out?
  • What can you do to increase your cash flow?

So, let’s start!

 

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What is Cash Flow?

The balance between your company’s incoming and outgoings over a specific time is called cash flow. It includes any current money and the money coming in and going out. But, it does not include investments or assets.

 

How to Workout Cashflow?

In order to workout cashflow the formula is as follows:

cash flow in business

Cashflow= (Cash + income) – expenses

For instance, suppose if you want to calculate your CF for September. In sales, you make £5,000 and spend £3,000 on new stock and other expenditures for that month.

In your business bank account, you had £3,500 at the start of the month. This implies that your companys’ cash flow for September will be £5,500.

Putting these values into the formula to make it understandable:

Cashflow = (Cash + income) – expenses

Cashflow = (£3,500 + £5,000) – £3,000

Cashflow = £8,500 – £3,000

Cashflow = £5,500

 

 Unable to calculate your Cashflow? Let us handle it!

 

Why is Cashflow Important?

The CF shows the financial status of a company, so we can say that it is like its pulse. Your company will have a positive CF if it has more incoming money than money going out. And, the CF will be negative in case the outgoing money is greater in amount than the money coming in.

A positive CF implies that your company will have money to invest or restock in essential outlays in the coming days. On the other hand, if your company has a negative CF, it implies that your company will quickly run out of cash and not be able to pay for the required things.

 

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How can I Increase my Company’s Cashflow?

You can increase it by increasing your company’s sales, minimising its expenses, or doing both. However, in case you want your company to continue improving, you won’t want to minimise your expenses. In addition, without increasing your market investment, you are unlikely to maximise your sales.

It is better to look around for short-term financing in this circumstance—many financing options like merchant cash advances, small business loans, business credits, and invoice financing. Every type works differently and has its pros and cons.

 

Quick Sum Up

Now that you know what is cash flow and why it is important for your company. We would sum up our blog by saying that it is essential to manage your company’s CF as it directly impacts its growth. Moreover, a positive CF helps to enhance confidence in the company and puts you in a strong place to deal with lenders and get more discounts from suppliers. Therefore, if you can not manage your CF efficiently, then ask an expert to do this for you!

 

CruseBurke offers affordable financial services! Get an instant quote today!

 

Disclaimer: This article intends to provide general information based on what is cash flow.

 

    

Related post

What is Cash Flow Management!
Importance of Cash Flow Management!

21/04/2022Business , Business Growth Ideas

You are associated with a business that sells products or offers services, cash flow management is the reason that will bring you success or failure. All businesses consider it a fundamental factor to reduce the risk of cash flow problems. This became a major problem in the phase of COVID-19 as well that your most reliable customer happens to struggle with on-time payments. This article will not only explain what is cash flow management but also the key factors to meeting payment expectations during uncertain times. The lifeblood of a small business is to maintain a healthy cash flow. Before we indulge further in the discussion, here is a glance at the listed points of discussion in today’s articles. These include the following: What Is Cash Flow Management? Cash Flow Problems and SMEs Final Thoughts   Stuck with your accounts and looking for a helping hand? How about you get our guys on a quick call. We love talking about taxes, payroll management and any opportunities that help you expand your prospects. Call us on 020 8686 8876 or email us today.   What is Cash Flow Management? In simple words, cash flow is a process that allows you to track the record of incoming money of your business as well as monitor the outgoing. Property costs, bills, and salaries are some such examples that refer to the definition statement of cash flow. If the process of cash flow is done in an appropriate way, it allows for a clear picture of the cost and revenues. Moreover, the struggle of bill payments and profits will turn smooth. A good understanding of cash flow will bring the following with it: You will be able to forecast the profits of the company. You will be able to identify more and more opportunities for investment. A clear picture of revenues and cost. Key to bringing success to the business. Survival and growth of the business. It is vital to understand that unpaid invoices from customers can cause serious damage to the business. Even the increased revenue can not fill such a black hole that is because of the unpaid invoices.   Cash Flow Problems and SMEs No matter whether a businessman is carrying out business on a large scale or small scale, all of them intend to avoid the problems that come with disturbing cash flow. The most affected by bad cash flow are the SMEs if the cash flow is negative. This is because large businesses have the option of funds to compensate for the gap of late payments. However, small businesses totally rely on the predicted monthly income. Indeed, their financial commitments are met in this way. In some of the worst cases, business owners have no choice but to use personal funds to float the business well. If the negative cash flow is for the long term, this will stop the growth of ambitious businesses. The business owners will be stuck with the monthly requirements than focusing on business valuation and seeking unique ways to grow. No wonder, late payments make the owners worry even when they are not at work. According to research, business owners worry about late payments even when they are off from work. Furthermore, with positive cash flow, a regular credit check on the suppliers and clients is possible. This will further help to focus on business growth and valuation.   Coffee, cookies and taxes. What a perfect match. Get in the car, and reach our office today. Call us or email us to book your initial free one-hour basic consultation to discuss your requirements. We’ll make sure that we get all your documents submitted on time. Talk to our guys today!   Final Thoughts Now that you have developed a basic understanding of what is cash flow and how negative cash can impact your business entity. We can sum up the discussion by saying that the common signs of future business difficulties should not be avoided. By having a clear cash flow, you will be able to avoid the negative impacts that are discussed above as well. We hope these few minutes of reading will help you to make the right business decisions. Get in touch, explain your requirements, or sign up online.   Disclaimer: The information about what is cash flow management provided in this article including text, images, and graphics is general in nature and does n to intend to disregard any professional advice.

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