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How to start with cash flow management! - Part 1

Cash flow management is crucial to the success of any business. The time between paying staff, overheads, and suppliers to the point of receiving the payments from clients is often where the problem lies.

If you are a business owner or a manager, you need to start looking to future cash flows and not just evaluating the profit. You should be able to estimate the time discrepancy between expected incomes and planned expenses as accurately as possible.

To have a methodology for cash flow management is very important.

And we can help with that!

My advice for a good Cash Flow Management Plan:

"Prepare for the expected and Plan for the unexpected."

Step 1 - Gather Information

The first step for cash flow planning is getting information, and you can take it from the sources you have at your disposal. It can be an invoicing system, Customer Relation Management system, bank statements, and accounting system.

Although the need for the detail is a purely individual matter, it is essential to have an overview and have it on time. So, you only need sources that include the large package of incomes and expenses. These are usually invoices, salaries, rent, and other expenditures, such as credit installments.

It is interesting how often a big tax bill or other debt can make a company have a liquidity problem. " I wasn’t expecting it!"

One of the most important elements in cash flow planning is timing. You need to know when and how much money will leave the company and come in. You also need to clarify the starting point, the date, and the amount. For example, the date can be the first day of the month and the initial amount you can see on your bank statement.

You should make the financial forecast reports for the upcoming quarter and afterward for the year. These reports can give you a clear heads up if there is trouble on the horizon.

Step 2 - How to start

Let´s start the planning!

The first item in your cash flow plan is the balance of money in the accounts.

Then, the correct cash flow planning always starts with income, not expenses. This way of building your cash flow forecast report will give you the ability to prevent problems and find solutions before a mismatch between income and expenses occurs.

The other important element to success lies in the most realistic knowledge of expected income. The inflow of money is certainly less predictable than your expenses. But you need to know the almost certain income for good planning. If you do not have several sources of money, your business will probably be more sensitive to shortages of money.

In the next article, I will help you with how to forecast your income.

If you think "Cash Flow Planning is difficult!" or "I don´t know how to start!" and you need help, please contact us!

We are here to help!

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