What is cash flow and why it’s important

Cash flow happens to be one of the major concerns of small businesses. In fact, studies show that 82% of business failures are due to poor cash flow management, or poor understanding of how cash flow works. Therefore, managing it effectively and understanding where the money you are spending is going and why is of utmost importance. Here’s what you need to know:

What is cash flow?
Cash flow is the amount coming into a company (from customers buying your products/ services) and the amount of money going out (expenses such as loan, bills, taxes), and it’s particularly important for SMEs which fall into the habit of spending more than they can afford because they don’t have an accurate picture of all their incomings and outgoings.

What do I need to know about cash flow and why it’s important?

  1. Cash flow is a primary indicator of the financial health of your business
    This is because it shows whether your business is making enough to sustain itself and if actions need to be taken for your business to survive and thrive. In simple terms, cash flow shows how efficiently you run the business. With an accurate cash flow statement, you’ll know the exact amount of money you have available at any given moment. If you fail to manage your cash flow carefully, then you are putting your business at risk.
  2. Cash flow opens up opportunities to grow
    Cash flow management might help you manage debts better, but it also opens up opportunities for you to grow your business, whether that’s hiring more people, stocking up goods, improving technology, investing in research and development, or opening a new store. Getting to a position of excess cash flow helps your company operate in a strategic, proactive way, rather than a reactive way.
  3. Cash flow management is an operational issue, not financial
    All departments in a business, from sales and marketing to account management, client services and procurement, should handle their day-to-day activities with cash management in mind. For example, the marketing department should know if a customer repeatedly fails to pay on time so that they won’t continue doing business with him. The key is for everyone in the business to be kept in the loop – after all, they have cash flow to protect too.

 

Keeping track of your business’s cash flow doesn’t have to be a headache. If you need help managing all of your finances, tracking profit and loss, and business expenses, feel free to contact us on +357 7000 8812 or info@predeevo.com

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