What is cash flow and how can you apply it to your business?

Learn the importance of this type of tool for the financial health of your business
The lack of control over the money that enters and leaves your business is a problem that not only causes your financial disorganization, but can also increase the risks of entering a crisis due to the accumulation of debts and, consequently, declaring bankruptcy.

That’s why tools like cash flow, which help plan and control a business’s finances, are essential to prevent these problems from happening. After all, they organize your finances, give a projection of inflows and outflows and favor working capital (which is the money needed to maintain the health and continuity of your business).

Learn how cash flow works and the proper processes to apply it to your business. 


What should be recorded in the cash flow?

In cash flow, you need to record all the financial transactions of your business so that you can identify the available cash balance and thus have the chance to project your future. 

Among the necessary information are the documents, payments and forecasts, which are:

  • Receipts: represent cash sales, checks, cards, installment sales, receipt of trade notes, return on investment, sale of assets, among others; 
  • Payments: purchases made both in cash and in installments, in addition to bill payments, expense payments and other business costs; 
  • Forecast: These are the receipts and payments of your business that are forecast for the future, basically over a period of at least three months. 


What are the cash flow benefits?

Using this type of tool in your business is a way to protect you financially, as you can control exactly how much comes in and what your outputs are, which ends up giving you an overview of your financial health and possible actions that should be taken.

But in addition, there are many other advantages, such as:

  • Plan future investments and loans ;
  • Organize promotions;
  • Negotiate payment terms with suppliers;
  • Identify expenses that can be reduced;
  • Predict the increase in prices of products or services;
  • Improve decision-making.


How to apply cash flow to your business?

To apply cash flow in your business, you need to define which of the types best fits your goals and needs, for example, the most common are:

  • Operational: known as the simplest, it is possible to observe the income and expenses of the business in a specific period, viewing results and cash available. 
  • Projected: a more advanced version, which aims to analyze the future, because it uses the data collected in the operational version to make projections of payments and receipts, in addition to calculating budget adjustments, and investments, among others. 
  • Free: uses the flow projections from the previous model to calculate the capacity of your business and generate capital, both in the short, medium, and long term. 

These three versions complement each other, but before you even think about using them, you need to start with the basics. In other words, apply cash flow to your business. To do this, have access to all your financial transactions, such as entries and exits, and categorize them.

After that, separate the inputs and outputs of the last 3 months, such as expenses, costs, and income. Finally, analyze the data, checking how much your business has in revenue, expense, profit, or even loss. 

This allows you to be aware of variations in cash in hand, as well as organize yourself to have a reserve, calculate the profit and make projections that enable the growth of your business. 


Apply cash flow to your business 

Cash flow is an essential tool for you to organize your business and give it the chance to stand out in the market with security and positive projections for the future. 

The advantage is that you will also have help to nurture your working capital, but remember that, for this, you need to organize your information and know exactly which actions will be efficient in your activity.

About admin

Check Also

How does social capital work? Why is it important?

Find out everything you need to know about this concept and how it impacts business. …

Leave a Reply

Your email address will not be published.