Cash Flow Explained for a New Business Owner
As any business owner is more than aware of, cash flow and having adequate capital is absolutely crucial to running a successful and profitable company. In fact, without enough cash, it’s not possible to cover regular costs and keep the company running. Whether your primary capital sources are investors, clients or loan programs, understanding how cash flow works and how money enters and leaves your business can help you get a stronger handle on your business’s finances to help you plan for an economically secure future.
1. Identify Sources of Cash Influx and Causes for Cash Expenditure
Your company’s cash flow is simply the amount of money that goes in and out every month. In order to pin down this number to get a more accurate picture of your finances, try to identify what some typical sources of cash influx for you are, as well as the reasons you need to spend cash regularly. For example, common causes of money going out of a business include business loan repayments, various types of taxes, office rent costs, supplier and manufacturing costs and so on. On the other hand, the most typical sources of cash influx for a company are clients and others who purchase the products and services you offer. Remember that factoring can count towards the money you have coming in.
2. It’s Essential for Getting Started and Going Strong
You may be wondering why having cash is important to your business when you can simply apply for loans. The answer is that without adequate capital, even loan repayments won’t become feasible, and you certainly won’t be able to turn a profit. A regular stream of capital can not only help get your business off the ground, but can keep it going strong, too.
3. Distinguish Between Paper and Virtual Cash
When you hear the term cash, you may immediately think of traditional paper bills, coins and other physical currency. However, it’s important to distinguish between paper and virtual cash. While many businesses do still incorporate a lot of physical cash into their model, and many customers choose to pay in cash, virtual money also counts as part of the money that goes in or out of your company. When you look at your financial state, be sure to take both into account.
Every company relies on adequate capital to pay for regular operations, cover employees’ paychecks, keep customers happy with new merchandise and much more. Recall these three core concepts to help you plan out your finances and maintain a healthy balance sheet for your company’s future.