Why is cashflow important to a business?

Cashflow is such an integral part of every business, so why is it that none of us know exactly what it is and why it is so important?

We like to think of cashflow as the vital nutrition for our business to survive. Much like the body needs nutrition, your business needs cash to survive. A business can have many goals, but it is the cash that makes it possible to achieve those goals. This is why cash is so essential to a company; your body of a business will not survive long without the vital nutrition fueling it.

By definition, cashflow is “a real or virtual movement of money:  cashflow in its narrow sense is a payment, especially from one bank account to another”.  However, in reality it is so much more than this, cash flow…

• Provides liquidity for your company
• It allows you to make prompt and on time payments to your suppliers
• It will enable your company to meet its tax liabilities on time
• It will reduce additional and unnecessary cost, such as interest charges
• It protects the wider economy
• It provides a positive reputation for your business in the long run, and,
• It allows you to feel in control and enables you to be future focused and set a plan.

However, just like our body, our cashflows have weaknesses, thus, we need to keep in mind some important factors. Those who we choose to work with, margins, pricing and marketing channels all affect our cashflow. We need to acknowledge that every activity carried out within our business will come at a cost. Whether it be marketing, development, social media or networking, costs will be incurred. We recommend, that every time you are making a business decision, ask yourself one simple question…

“in which ways will this activity of business decisions impact my cashflow?”

Tips for Managing Your own Cashflow:

• Create your own invoicing strategy; by keeping a close watch on your accounts receivable turnover, you will be able to keep up to date with your payments, and act sooner rather than later if chasing payments
• Keep up the accuracy of your books; make sure your accounting information is frequently revised and kept up to date
• Keep your personal finances and your business finances separate; this tip is vital if you are wanting to understand the cashflow of your business and predict how that could change. Mixing your personal and business finances will leave business performance unclear.
• Remember KISS, keep it simple silly; keep your accounting simple. If this is not your strength then, don’t be afraid to hire a professional bookkeeper. Invest in quality accounting software to ensure you always know your financial position.
• Build a cash reserve; a cash reserve offers that buffer for handling unpredictable incidents. This also gives you the confidence and the funds that your company requires in order to grow your business.

If you need a hand managing your cashflow or have any other bookkeeping requirements please feel free to give us a call on 04 2329199 or leave you details below and we will be in touch.