What is Cash Flow and Why it’s Essential for Your Brand

What is Cash Flow

Cash flow is one of the most important things that you’ll need to know about when you’re managing a business. Regardless of whether you’re a part of a small business, or in charge of a huge brand, cash flow management is one of the essential basics.

In this article, we will discuss all the basics of cash flow that you need to be aware of. By the end of it, you will have a clear idea of what cash flow is, how it affects your company and some tips to manage it.

What is Cash Flow? 

Cash flow refers to the transactions that a company is a part of. It receives money when it makes a sale, and it spends money when it has to acquire resources. Whatever is left over after the company spends money is the net profit that it has earned. 

Where revenue is generated from: 

  • External investments 
  • Sale of assets 
  • Product sales 
  • Service payments 

Where the company usually spends on: 

  • Operational costs such as rent, utility and office supplies 
  • Worker salaries
  • Production costs 
  • Debt service 

In essence, you will be comparing the amount of money you start out with, to the amount you have left at the end of this process. This understanding is the first step towards increasing the profitability levels of your company. 

Focus on Short Term Cash Flow 

Managing cash flow in the short term is a process that involves transactions made daily. Keeping track of these expenses is the most basic understanding of cash flow for a business. 

Of course, tracking all the expenses at this level requires a lot of effort. Also, the different categories of transactions are all under scrutiny. This way, you can see where you are spending more than required, and can reduce the expenditure as required. 

As a result, you will have more control over your company funds. And in the long run, it will set you up for better planning and success. 

But, managing every single transaction that a company makes can be very difficult. The smallest of errors can lead to a loss of funds. So, care has to be taken to ensure that the details are all correct and are properly documented. 

With that in mind, let us look at some of the tips for managing cash flow. 

Tips on Managing Cash Flow Better for Your Company 

This section deals with tips for making cash flow management easier for your brand. Here are the main points that you should be following at all times. 

Prioritize Cash Flow Over Profit 

One of the common misconceptions when running a business is that profit is the only thing that matters. But the reality is quite the opposite. Your success in the marketplace is determined by how well you can manage your cash flow. 

You should always measure the company revenue with the break even point. If the stream of revenue is more than your break even point and you feel that money is tight, it is time to reassess the company expenditure. 

Have Cash Reserves 

Having a cash reserve can work wonders, especially if you’re a startup. Even the best designed financial plans find it difficult to not have any drawbacks. In any case, you are prepared since you have extra money that you can put to use. 

One good way to work towards having cash reserves is to split the payments for expensive equipment. By making the payment process monthly, you are able to hold on to the important capital that is needed. Moreover, you are also prepared to invest in any new opportunities if they arise. 

Encourage Early Payments 

By encouraging early payments you are essentially regulating the cash flow. You can charge interest for late payments and offer discounts for early ones. Reminders to customers also help ensure the regularity of the cash flow. 

Monitor Your Expenses 

While cash flow should be the priority in running a business, the profit is the real prize. And you can increase this amount by doing away with unnecessary expenses. Always keep a track of where the company funds are going, and analyze whether they are necessary or not. If you can do without them, then you should get them off your books. 

Switch to a Dedicated Software 

Keeping track of cash flow using a spreadsheet is very time consuming, and prone to errors. So, you should consider switching over to a dedicated software that helps you stay on top of all your company payments. 

This will not only help you monitor your company funds, but also increase overall productivity. 

If you’re looking for a software solution that helps you monitor your cash flow, Mesh Payments can help. Our spend management tool helps you keep a track of all your business transactions. As a result, you are one step closer to achieving long-term success in the future. 

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