Subscribe
In this episode of the Sage Advice Podcast, “Business Management as a Key to Success , ” Joan Boluda tells us the basics that freelancers and entrepreneurs need to know about cash flow. Shall we get started?
Discover the basics of cash flow that freelancers and entrepreneurs should know.
All our podcasts on business management can be found on Sage Advice Podcasts. Give us a listen!
As we mentioned, in today's democratic republic of the congo email list
episode we talk about tips on cash flow. And, of course, the first thing is to provide a little clarity to the concept. Cash flow or treasury flow is the term that is technically used to refer to receipts and payments. Because we have two types of flows: ones that come in (receipts) and others that go out (payments).
What do I need to know about the different types of cash flow?
If we don't have much knowledge, we are likely to think that the goal is to accumulate significant sums in our company, that is, to have many collections and few payments. Nothing could be further from the truth. As in almost everything, in cash management, excesses are not good .
In general, we will be interested in generating a flow of collections that is well correlated with the flow of payments. We will want to have sufficient means to satisfy disbursements, but not an excess of liquidity . Money, after all, does not generate profitability.
So, it is not in the company's interest to have money? Yes, of course, just enough to meet payments and give third parties confidence that we will continue to do so in the future.
How to maintain balance in our cash flow?
To achieve a balance in our cash flow, it is essential to start with good forecasts . We are interested in knowing the how much, when and how of both collections and payments. We want to have a calendar in which we can place the arrival of cash flows by their amount and payment method.
The latter is very important in small businesses . Let's think about the collections of a small business, for example. It is good to know, on a specific day, how much we expect to collect, but also to make a forecast of how many collections will be by card, how many in coins, in bills or in other means of payment.
We will want to know, for example, at what times we are most likely to have problems with cash exchanges if we do not plan ahead, or when we are most likely to have to make a more complex payment that requires a greater effort to serve the public.
It is just an example, but we see how a seemingly tiny detail, such as forecasting the movement of coins throughout the day or week, can make our work easier and prevent us from wasting time.
The importance of accounting information
When it comes to cash flow forecasting, details matter a lot . And the raw material for making forecasts is, fundamentally, accounting information. Almost everything that happens in the company has repercussions on collections and payments .
For example, we need to predict the movement of inventory , even though stock is a physical and not a monetary asset, because it will dictate when we will make supplies and when we will have to pay for them, and when we will make sales and when we will collect them. Likewise, whether storage or manufacturing processes evolve at one pace or another will affect the payments we need to implement them.
And so it goes with everything: depreciation, taxes, investments... And, of course, you have to pay close attention to accounts receivable and payable : those from customers and suppliers, but also debts to other creditors and credits to other debtors, including financial institutions and administrations.
