Where Does All The Money Go? 

A business can be profitable but have a negative cash flow situation, and if you are scratching your head wondering where the money goes each month, then it is time to shift your focus from profits to cash flow. While profit is a cumulative thing, cash flow is a daily event, and if you don’t plan to track this, you might be heading for some uncomfortable conversations with your investors and lenders.

Where is your cashflow going?

The best way to start is by using the right tools to identify the movement of cash in and out of your business, and this is done by using a cash flow analysis. 

A good cash flow analysis shows where the cash comes in from and goes out to. The difference between the cash flow analysis and your income statement is the inclusion of items such as debt payments and the timing of outgoings, like those periodic tax payments, plus customer payments that might be invoiced in January but don’t pay you until February. So, while you might certainly look to have made a profit in January, your bank balance could easily be in the red.

Without Cash Flow Forecasting, You Might Make Poor Business Decisions. 

Before deciding to purchase assets or expand your business, you need to know that the cash is really there to fund it. Those larger periodic payments, GST, and end-of-year tax payments can gouge your bank balance, and cash flow forecasting helps you to identify if there is a surplus or a deficit so that you can plan for future investment in your business.

Rather than just another business report, cash flow forecasting is like the weather chart for your business. Stormy weather can be predicted, and droughts averted by solid planning and cash flow monitoring. Truly an effective forecast will identify seasonal trends like the Christmas rush and give you a heads up on those chunky payments in advance, such as rent. It can also give insights into the products that drain your cash flow and those that whip through with hardly a ripple.

While this sounds like a lot of effort on top of all the work you are already doing, it needn’t be. Using your accounting software should identify when suppliers are due to be paid, and customer invoices are expected to be settled. 

Effective Accounting Software Can Simplify Your Cash Flow Forecasting.

Once you understand your cash flow, you are back in the driving seat. Now you can tackle your business’s management and appreciate how your business’s cycles impact your bank balance. 

But if, like many entrepreneurs, you simply don’t know how to manage your cash flow, these tips should help.

  • Control your stock inventory. Having too much stock on site is literally like stacking your money on the shelves. Consider how much you need to meet customer demand and make sure you do regular stock takes.  
  • Talk to your suppliers about payment terms because getting a good discount can be offset if the timing of payment is a sneaky cost to your business, especially if it makes you overdrawn. 
  • Follow up on overdue customer invoices early. As a bonus, a quick phone call can help with customer relationships and give you an indicator of customer sentiment for your services. •
  • Be aware of those larger future outgoings and put money aside during the high earning periods. 
  • Track your cash flow movements against your forecast to identify any unforeseen expenses or blowouts early.

 With The Ezy Team’s help, you can experience the peace of mind and financial stability that comes with healthy cash flow. Let us assess your current situation, make the necessary improvements to your books and ensure a secure future for your business. Take one step towards positive cash flow today – Contact us NOW for expert bookkeeping and accounting services.

Author: Jackie Whitaker

Email: jackie.whitaker@ezyaccounts.com

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