A recent report from ASIC found that poor or inadequate cash flow was the number two reason for most businesses failing. It might be surprising to know that even if your business is doing well and making profits, you could be setting yourself up for failure if your cash flow isn’t managed correctly.

Cash flow refers to the money you’ve made that allows your business to continue to operate, and it’s used for everything from purchasing inventory to paying your staff. Without a good idea of your business’s cash flow and where exactly your money goes each month, you’re likely to underestimate your running costs and find yourself in a crisis.

Cash Flow?

In general terms, cash flow is the migration of funds in and out of your business through an inflow and outflow. The inflow refers to the money received for goods and services, asset sales, and lines of credit, where the outflow is everything your business spends money on, including business purchases, expenses, and credit payments.

Finding a balance between your inflow and outflow is crucial for correctly managing your business, regardless of size. When done correctly, you’ll have sufficient cash reserves to give yourself more options and ensure that you’re not left with unexpected costs each month.

How Can I Manage My Cash Flow?

The simplest way to manage your cash flow is a spreadsheet. At its most basic level, a cash flow spreadsheet should list all of your proposed costs and expenses as a company for the next 12 months so that you can be aware of just how much money you need on hand to meet these.

For new business owners and those without sufficient financial background, this can be harder than it sounds. You’ll need to include information such as investments, operational activities, and financing activities as well as your everyday running costs. Speaking with a professional accountant is the best way to set this up, to ensure you’re giving your business the best chance at succeeding.

Expert Advice For Your Small Business

Operating a business can be tricky work, and among all of the other tasks, you deal with each day you don’t need to add finances to your worries. Thankfully, the team at Hart Partners are on hand to offer expert advice for all of your financial needs.

If you suspect you have a cash flow problem in your Melbourne business, or just want to better understand how to handle your finances, we invite you to contact us to get things on the right track.

* * * Disclaimer: No person should act on the general information in this article without taking specific advice from a qualified advisor. * * *