INTRODUCTION

Cash Flow and its Importance

When Starting a Business and managing cash flow issues is very challenging. You have plenty of expenses, and money is constantly moving out. You may also have no sales or customers that do not pay on time. So you will need to find other sources of getting cash, such as a temporary line of credit, to get you going and be in a favorable cash flow situation.

Usually, the first six months of a business are a critical time for cash flow. If you don't have adequate cash to carry you through this time, your chances of obtaining results will not be good. In addition, suppliers often don't give credit to new businesses, and many of your customers may want to pay on credit; this leads to a "cash crunch," which you will have to deal with.

It has been estimated that a cash flow is needed for your startup, which includes your personal expenses that will need to come out from the business. Therefore, the less you need to take from your business for personal expenses, the more you can devote to your business during this critical time.

Lack of cash is one of the leading causes for small businesses to collapse, Called "running out of money," which does close down a business faster than expected.

Cash flow is the money movement that shows the in and out of your business monthly. Although it sometimes seems that cash flow only goes one way out of business, there should be a two-way flow.

Cash is that coming in from customers or clients who are procuring your products or services. If customers don't pay on time, your cash flow is shown in the accounts receivable collection.
Cash that is going out of your business is in the form of payments for expenses, like rent, mortgage, loan payments, Interest, taxes, and other accounts payable.

Seasonal Business: Cash flow is primary for seasonal businesses—those that have a considerable business variation at different times of the year, such as hospitality businesses and summer businesses. Dealing with cash flow in this type of business is

complex, but it can be done with diligence.

Cash Vs. Profit: A business can likely make a profit but have no cash. How can that occur? The easy answer is that profit is an accounting notion, while cash, as mentioned above, is the amount in the business checking account. Profit does not pay any bills. You can have assets, like accounts receivable, money owed to you by debitors, but you may not have cash if you cannot

collect what is owing.

Lack of cash is one of the leading causes for small businesses to collapse, Called "running out of money," which does close down a business faster than expected.

Cash flow is the money movement that shows the in and out of your business monthly. Although it sometimes seems that cash flow only goes one way out of business, there should be a two-way flow.

How you can manage your Cash Flow

Here are some ways to on improving your cash flow to prevent a cash flow crisis: You are having better control of inventory. However, having too much inventory ties up cash. Therefore, keep track of stock so you can estimate your needs better.

Collect receivables. Set up a collections schedule, using accounts receivable aging reports to monitor your debtors—regular follow-up on debitors.
End lossmaking Dealings. It would be best to decide when it is time to end a relationship with someone who never pays.

Using a Cash Flow Reporting

The best way to continually maintain the business cash flow is to run a cash flow report. This report will identify the cash you received, and the cash paid out from your business. This cash position is generally done at the end of every month.

These are some examples:

What will occur to the cash flow if a customer pays a bill?
What will occur to the cash flow if your business buys supplies or increases inventory?
What will occur to the cash flow if you pay your employee or an independent contractor their wages or salaries?

At times, you need to keep track of cash flow weekly, maybe even daily.

To give you some tips: -

1. At the end of each month-end, look at your total sales.

2. It is adding up purchases that have been made and what is still needed to be paid.

3. The variance is what you will need to bring in the additional income to stay even.

If this monthly cash deficiency carries on for several months, you'll get further and further behind.

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