Cash Flow – Do You Understand What It Is?

understanding cash flow

It’s Thursday evening and you have to meet the payroll deadline for tomorrow, but there isn’t enough cash (money in the bank) to pay your employees or sub-contractors.  Your sales are good, new customers are coming all the time and you keep an eye on your expenses.

So, Why Don’t You Have Any Cash?

You need to understand cash flow, the positive and negative of it. The bottom line on your Profit and Loss might show a great profit, but that doesn’t automatically mean there should be money in the bank. And poor cash flow is one of the biggest reasons that small businesses fail.

Here Are a Few of the Key Areas that Can Affect Your Cash Flow:

  • Accounts Receivable
  • Purchase of Assets
  • Inventory
  • Accounts Payable
  • Paying down debt

Where to Start the Analysis

If you’ve been in business for a while and your bookkeeping has been done accurately then your prior year’s Profit and Loss is a good place to start the analysis.  A newer business or a start-up should start with a cash flow budget.

Estimate Your Cash Flow Budget for the Year

Like all budgets a cash flow budget starts with estimating cash receipts and cash expenditures.  I suggest the numbers be estimated monthly for a 12 month period.  Good bookkeeping software allows you to enter your budget information and compare it your actual amounts, which should be reviewed frequently. Frequently means at least monthly, if not more often.

Perhaps there is money in the bank, but is it yours? A large percentage of it may be owed to the government for GST/HST, payroll liabilities or corporate taxes. Unless you started your business to be an accountant or bookkeeper, crunching numbers probably isn’t something you want to do or even like to do.  But your business success requires you to have a certain amount of financial literacy.

Need help with determining your cash flow, creating a budget or both?  Please contact me, I would be more than happy to work with you on these.  For cash flow you can chose one of 3 packages that I have available, with fixed prices. No surprises or unexpected hits on your cash flow.

If you’re running out of money, you may be running out of time. Every cash flow problem has a solution, if you see it coming.

You can connect with me by clicking the contact tab at the bottom of the screen if you are reading this post on the website. Or you can leave your information in the form of a comment right here on the site.

Until next time,


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