How important is Cash Flow for Small Businesses?.For all that we have already mentioned above, you must have realized that Cash Flow is an essential part of the life of any company. In small and medium sized companies, then, this control becomes even more essential. This is because we speak of companies that are often start-ups and have lower turnover and that are often not very well managed by their managers.
A recurring problem in microenterprises, for example, is that of administrators who frequently mix their personal accounts with business expenses.
A recurring problem in microenterprises, for example, is that of administrators who frequently mix their personal accounts with business expenses . As much as, in theory, “everything belongs to the owner”, it is essential to separate the company’s revenues and expenses from the expenses incurred by the owner as an Individual.
For all that we have already mentioned above, you must have realized that Cash Flow is an essential part of the life of any company. In small and medium sized companies, then, this control becomes even more essential. This is because we speak of companies that are often start-ups and have lower turnover and that are often not very well managed by their managers.
A. Preparation of the Management Account Plan
The Management Account Plan is a model for organizing the company’s financial data. It is important that it is not confused with the Accounting Chart of Accounts, which is more detailed and complex. To set up a Management Plan, first of all it is necessary to have knowledge about financial data. Then, it is necessary to categorize the company’s revenues, expenses and costs.
B. Preparation of the Cash Flow Statement
In preparing the Cash Flow, account is taken of the inflows and outflows during a given period. This dynamic income statement must be included in the Balance Sheet and its presentation is mandatory for all publicly traded companies whose net equity is greater than R $ 2 million. It should include operational activities, investment activities and financing activities.
C. Cost Reduction in the Company
The Reduction of Costs in the Company is a direct consequence of a well prepared Cash Flow. The more detailed the description of financial transactions, the easier it becomes to identify expenses with the potential to be reduced or even discarded. A good cash flow analysis invariably results in a cut in superfluous expenses and a more solid financial condition from the point of view of expenses.
D. Financial Projections
Cash Flow realized month by month also becomes an essential ally in the planning of a company. From it, it is possible to prepare the financial projections for the following months.
This makes it possible to provision resources in order to guarantee their subsistence over a certain period, even if there is a severe commitment of revenues. It is, therefore, a basic element for companies that wish to grow or invest.
E. Bank Reconciliation
Banking Conciliation is nothing more than comparing internal financial data with bank statements. When the company does not have an organized cash flow, it is difficult to carry out this mission assertively.
The use of financial management software makes this task much simpler. In the case of Sage Start , for example, it is possible to import the bank statement and reconcile it with the launched schedules.
F. Preparation of Control of Receipts and Installment Payments
Installment amounts receivable need strict control by the entrepreneur. Often, the offer of a differentiated payment condition appeals to customers and suppliers, but in practice the numbers may indicate that this is a bad deal. To find the balance between the possibilities of installments and a condition that does not compromise finances, it is necessary that the Cash Flow is perfectly adjusted to support medium and long term payments.
G. Customer and Supplier Management
Partner customers and suppliers deserve a special payment condition, as long as they purchase volumes that compensate for this investment. How to find the balance and offer a deal that is good for both parties?
The answer lies in Cash Flow. It is through your organization and subsequent analysis that you will have the indications regarding what is possible to be done. Any questions about the importance of this tool?