April 4, 2020
What is cash flow?
Cash flow is the amount of money coming and going from your account every month. Take into account all your sources of income and the frequency of payment and chart it. Next, take all your expenses (one time, weekly, monthly, annual) and chart those.
The resulting chart will give you a clear picture of when and how much money is moving through your account. This is cash flow, the lifeblood of your business.
If your cash flow is positive, good job! If you take a look at your chart and your cash flow is negative, that can be a huge problem. But if you are one of the business that strategically planned a negative cash flow (many startups do this on purpose), then you probably have a plan on how to be profitable, but still keep an eye on it to make sure everything is sticking to the plan.
Your accountant should have a cash flow projection and past records available to you to learn more about the specifics of your business. If this is brand new to you, there is an excellent article on how to prepare a cash flow projection here. If you cannot remember, most business plans have a section on projected cash flow. Checking your original business plan is a great refresher.
Why is familiarity with your cash flow important?
Do you need to make a big purchasing decision in the near future or buy new equipment or expand your staff? Your cash flow will give you the information on whether and when best you can afford to make those purchases. Are you consistently stressed about money towards the end of the month or maybe the middle? Your cash flow will show you when you are paying off your bills, and with that you can work to adjust the due dates to make everything flow more smoothly. If you cannot figure out why you have tons of sales but no cash, take a look at your cash flow, and if it still seems off, check your accounts receivable. Late payments can throw off the entire rhythm.
Learning to create your own cash flow budgets and predictions can be tricky and intimidating at first. But when you break everything down into small parts, like any project, it becomes much more manageable. You will be fluent in no time. The more familiar you are with your cash flow, the less stressed out you will be.
BY Alyssa LeBlanc
BY Max Golovnia
BY Alyssa LeBlanc
Armatic Co-founder and CTO