Small Business Cash Flow

The area of small business cash flow is a crucial one for any organization that hopes to succeed in a competitive marketplace. The movement of funds into and out of any smaller company is something that should be carefully tracked and strategically enhanced. Understanding how to accurately track these funds as well as how to keep money flowing in steadily is a skill that a business owner will need to possess if they hope to succeed. Analyzing how money streams into a company is something like monitoring the health of an individual. There are certain indicators that will need to be considered to give a realistic assessment of general health. Sales history and projections are important factors that must be examined. Monthly expenses will need to be taken into account as well. Monitoring small business cash flow is an absolute necessity. There are also ways that a company can keep this steam of money coming in at a steady and consistent rate. Technology has made it possible for businesses to speed up the reception of bill payments through a variety of means. Check by phone is a service that allows clients to to make payments quickly over a telephone line, eliminating the lag time that can come with written checks that are sent through the mail as well as credit card processing. On line electronic checks can offer similar benefits. Automated payments can be set up via the Internet and can insure regular and timely payments from clients each month.

Calculating small business cash flow can be done using a variety of methods. A basic budget is a good place to start. A company's budget will usually include figures on projected profits as well as expected losses. Understanding and evaluating this crucial money stream will generally include looking at several factors. These factors will usually include starting money, ending money, funds that are coming in, and funds that are going out. Starting money, as its name implies represents the cash that a company has on hand on the first of a given month. Funds coming in will constitute any money that is received as the month progresses. These funds could come in the form of sales, interest payments, customer payments, and stock or assets sales. Monthly expenses might be fixed each month, or could also include expenses that will vary from month to month. At the end of the month, any money that is left makes up the ending cash figure. For example, if an organization has $5000 dollars in the bank at the beginning of the month, this is there starting money. Add to that an additional $4000 in sales that month, and another $200 in various interest payments, and $1,200 in customer payments. That takes the total to $10,400. Now come the subtractions. $700 for rent, $2000 for wages, and another $1000 in other expenses, that means $6,700 in ending cash for the month. Looking at all of these factors will provide a good view of small business cash flow for any organization.

An important part of succeeding in the business world will also involve managing small business cash flow. There are a number of practical steps that a business can take to better handle how money flows in and out. These steps could include depositing checks on a daily basis, collecting receivable accounts within a specified period of time, and accounting for all receipts. Making sure that customer invoices go out quickly can be helpful as well. Tracking all disbursements of funds is also important. Looking ahead and preparing for slow times is another good idea. Certain businesses are seasonal and will need to anticipate and make accommodations for these less profitable periods. Preparing for such slow times can mean anticipating certain liabilities such as payment on debts and payroll expenses. It can also mean making sure that funds are squirreled away to handle emergencies or unanticipated needs. Lines of credits at local banks can also help meet unexpected needs in a pinch, but other methods of financing are generally a better idea if this is possible. Prompt billing will remind customers of any debts that are owed and hopefully provide needed money for a smaller company with somewhat limited resources. Taking advantage of these practical steps can help a keep small business cash flow from becoming a big problem.

Some organizations will handle small business cash flow concerns by offering incentives to customers for early payment. These incentives may include discounts on bills that are paid within a certain period of time. Having access to funds when they are needed is important for the survival of any company. Reaching out to help the poor is a priority that is mentioned in the Bible. But whoso hath this world's good, and seeth his brother have need, and shutteth up his bowels of compassion from him, how dwelleth the love of God in him? (1 John 3:17)

Thankfully, handling profits can be the brighter side of dealing with small business cash flow. Profits should be used wisely, perhaps to service or retire accumulated debt. Investments can be another option and this could include certificates of deposit or money market funds. Placing funds in a savings account is another good idea. Profit sharing with employees can increase loyalty and good will. Another option is to put the money back into the business through capital improvements. All of these choices, along with many other options, can help smaller companies succeed.

Analysis Of Cash Flow Statement

A critical analysis of cash flow statement is vital information for a company's management team and for both prospective and current stockholders. By understanding the basics of cash flow management, company management are better equipped to make financial decisions regarding such issues as whether or not to purchase or sell capital assets, taking on and repayment of debt, and plans for additional growth. Investors can use the information from a cash flow statement (or CFS) as part of making wise decisions about buying, holding, or selling stock in the company. The U.S. Securities and Exchange Commission, more commonly referred to as the SEC, was established in 1934 in response to the historic stock market crash of October 1929. The SEC is headed by five commissioners who are appointed by the President of the United States to serve staggered five-year terms. To help ensure nonpartisanship, another requirement is that no more than three of the commissioners can be from one political party. The first SEC chairman, appointed by President Franklin Delano Roosevelt, was Joseph P. Kennedy, the father of President of John F. Kennedy. According to the SEC's official website, their purpose is to "protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation." Therefore, publicly traded companies are required to file certain financial documents with the SEC on a regular basis. The Commission has enforcement authority to ensure that businesses comply with its regulations. Since the late 1980s, the SEC has required publicly-held companies, those that offer stocks to investors, to file cash flow statements along with other financial documents.

An analysis of cash flow statement basically shows where a business's money comes from and where the money goes. This differs from the economic information that will appear on other accounting documents such as net income or profit and loss statements, or balance sheets. Though an unscrupulous company may use fraudulent accounting techniques to hide negative economic information on some documents, it's nearly impossible to make up a fake CFS because this document reflects, to some extent, actual bank account information. There are three basic components to cash flow management, namely core operations, investments, and financing. The operations component is based on income received for goods and services while considering depreciation and inventory. The investing component considers the purchase and sales of capital equipment. The financing component considers debt payments and stock sales. Of course, the actual equations are more complex, but this is a brief overview. Much of the information on a CFS comes from the income statement which provides earnings information. It might be said that the CFS "translates" the earnings within a specific period of time (usually monthly, quarterly, and annually) to give a summary of relevant economic information. Another way of looking at this data is to see an analysis of cash flow statement in terms of an operating or earnings cycle: cash is exchanged by the business for goods and services which are offered to customers in exchange for cash which is used by the business for goods and services . . . ad infinitum.

After the October 1929 crash, political and financial leaders understood the need and the right for all investors, whether giant institutions or the common man on the street, to have accurate and current economic information. Only armed with this data, could wise investment decisions be made concerning what stocks to buy, what stocks to keep in one's portfolio, and when it was time to sell certain stocks. The SEC ensures that publicly held companies provide this information and that it is accessible to current and prospective investors. Like practically everything else, the technological advances of the internet have made it possible for people to access a wealth of economic information about a company without leaving their homes. Even those with just a small amount of money to invest can do so through certain trading companies. The documents that the SEC requires a company to file can often be found on the business's own website or at all other websites. On some sites, the prospective investor only has to enter a business's stock ticker symbol to find reports, documents, and stock prices (both current and historical). Stock market gurus offer all kinds of advice, both good and not-so-good, for picking up-and-coming stocks. Naturally, education is the best means for avoiding disaster. It's always beneficial to give heed to the Proverbs writer, who said, "The heart of the prudent getteth knowledge; and the ear of the wise seeketh knowledge" (Proverbs 18:15). The more the prospective investor knows and understands cash flow management, the more likely good investment decisions will be made. Get rich quick schemes seldom work, but a plan based on solid principles, including an understanding of proper analysis of cash flow statement, has a good chance of being successful.

Some investment advisors believe and teach that a good first step for determining whether a business is a good investment opportunity is to find out if the operating cash flow (OCF) exceeds the total net income. If not, it may turn out to be a dud. A second, related step is to determine the company's free cash flow (FCF). The prospective investor will need to calculate this amount by subtracting money spent on capital expenditures and acquisitions from the operating cash flow. This numbers should be recorded for the last year in which they are available as well as previous years. Businesses that are growing quickly will be investing most of their excess funds into expansion so the FCF may not be high. That's acceptable. However, a company with negative FCF should be considered a risky investment. The numbers needed for these two simple steps can be found on many investment websites by entering the ticker symbol in the proper box and then finding the appropriate link. Understanding the investment basics, including solid cash flow management, will help investors make good investing decisions.

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