We all know that cash is king. However, understanding how cash moves within your business can be confusing, especially as your business grows in size and complexity. This is where cash flow control is important.
Using cloud accounting to assist in cash flow control – through 3-way forecasts and historical cashflow statements can help a business understand investment and use of cash flow and management of how that is moving.
In essence, every business has three different types of cash flow.
If your business is generating profits, it will generate cash flow. And if your business is losing money, it will also reduce cash flow.
Another area you can impact cash flow is your investment in your business. A growing business might be profitable; however, the investment of the business profits into working capital can result in the business burning cash flow at an alarming rate. Many start-up businesses have such a high need for investment into working capital that they cannot grow at the speed the market will otherwise allow.
Many family-owned businesses will fund the investing cash flow by contributing personal cash to give it the working capital needed, or they will take reduced wages (“sweat equity”). So, the business can fund investments into plant and equipment and working capital.
Likewise, a shrinking business is typically reducing its investments in working capital. So, the business can generate a positive cash flow as it reduces its working capital (or sells investments).
Understanding the underlying investing cash flow in a business is an essential part of addressing the cash flow control needs of the business.
If you borrow money from a bank, you can increase cash flow, and if you repay money to the bank, you will reduce cash flow. The same concept applies to shareholder loans.
Getting a clear understanding of the financing cash flow in your business will give you a better picture of your cash flow control and allow you to focus on the treasury operations of your business.
At Westcourt, we are committed to doing businesses owned by families great. And giving that business a clear understanding of its cash flow and tools for cash flow control is a crucial part of what a great accountant brings to the business. We help families through discussions, insight, accounting automation, and cloud accounting software that can give you real-time insight into your business’s cash flow.
Getting Westcourt on board to help you control cash flow is a proper business step. We are a sole focus firm that understands the unique needs of businesses owned by families; our cashflow accountants have post-graduate accounting qualifications focussed on business accounting. We are committed to cloud accounting solutions while remaining independent to get the best solution. We have created a business from nothing – so we understand the emotions and stress that a lack of cash flow can have on the family owners and directors of a business struggling to get a hand on cash flow – so why not give us a call.