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As an entrepreneur, what does cash flow mean to you? If you want your business to survive and even thrive, it should mean a lot to you–perhaps, even more than any other financial report your business generates.
Maintaining a robust cash flow is essential for anyone in business, but it is also a concept that can be pretty confusing. We’ve put together this guide to help.
Cash Flow: What It Is And What It Isn’t
According to Entrepreneur.com: Cash flow is “ the difference between the available cash at the beginning of an accounting period and that at the end of the period.”
Cash flow is different from revenue and profits, an important distinction that many small business owners seem to miss.
Being confused about the difference between cash flow and revenue can lead to mistakes and potentially severe consequences. To mitigate the financial problems that comes with running a small business, you should seriously focus on your cash flow. You can start the process by first creating a cash flow budget.
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What Is a Cash Flow Budget And Why Do You Need It?
A cash flow budget estimates of all the cash you hope to receive and all the expenses you expect to incur over a particular period–weekly, monthly, quarterly, or yearly. Having a cash flow budget will provide a picture of the company’s cash position over that period.
A cash flow budget is an integral part of running a financially viable business. It should include the following:
- Revenue and Sales
- Fixed, recurring, and non-recurring expenses
- Cost of inventory
- Capital expenditure outlays
- Operating expenses, etc.
These are details that most businesses, certainly a small business can’t afford to miss. The consequences for ignoring these details when creating a cashflow budget can be catastrophic.
Putting a cash flow budget together can be difficult and confusing, especially if you are not an accountant. And that leads me to my next tip: hiring a professional to help.
READ:
Why Hiring an Expert Is Worth the Investment
Accurate and healthy cash flow budgets and cash flow statements are essential for any business growth and success. Of course, figuring out your cashflow can be a complex process, not to mention a time-consuming one.
While having a cash flow budget is vital, you may not have the skill to create one, or you may have other projects requiring your undivided attention. Hiring a professional to help you out will be a good business decision.
We suggest hiring a freelance Accountant. It is cost effective and efficient. It is an extra expense you may need to budget for, but doing so is a great decision that will ultimately keep costs low. You can use freelance websites like Fiverr and Upwork to assess the average hourly rate charged by freelance CPAs, as well as compare the qualifications of available candidates. Most Accountants on these platforms charge between $12 and $32 per hour, but some may charge on a per-project basis. Pick the one that aligns with your business goals.
Managing your cash flow can take a few hours each week, so think of the money you spend on a freelance Accountant as a way to conserve your most precious resource, which is your time. Some questions your freelancer may ask before diving into your statements and reports may include:
- How much money has your small business been generating and using?
- What’s your available inventory and how much do you need to replenish?
- How much debt, account receivables, and planned expenditures do you have?
- How can you acquire more money, and in how much time?
The last question is crucial because it can help keep your business prepared for the unexpected. If you’re not sure how you would get your hands on additional cash to keep your business afloat, you’ll need the tips included in this next section.
READ:
- Passive Income: A Beginner’s Guide To Making Money While Asleep
- 13 Best Budget Apps To Manage Your Finances
- Frustrated About Your Bills? Here’s How You Can Make Some Extra Money
- 22 Ways To Cut Cost, Save Money And Make Your Budget Work
- I Need Money Now: 30 Ways to Earn Cash When You’re In Desperate Need
How You Can Boost Cash Flow For Your Business
Let’s say you’ve reviewed your cashflow statements with the new Accountant, and you’ve both realized you need more cash to keep your business healthy. What do you do? Well, you can do debt or equity financing to raise money. If you have investments, you can liquidate those investments to free up more cash to put into your business. Once the business begins to thrive, you can rebuild your investment portfolio from the profits.
Unsure about how investments work? The Wholesome Wallet has an entire library of resources to help you learn more about investments and how it can impact your financial well-being. From stocks to bonds to investment apps, you’ll find everything you need to build a portfolio. Finding a comfortable balance between investing in your business and pursuing outside investments is one of the keys to building a healthy cash flow and a healthy small business.
A business cash flow statement is different from its profit & loss statement, but it is equally important if not more so.
READ:
- 15 Amazingly Simple Ways To Pay Your Debt
- 36 Legit Ways For Teens To Make Money
- Free Government Money: 13 Ways To Get It
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