Cash Flow

The blood carrying oxygen to the whole business

Cash Flow 

Cash flow is the net amount of cash that is going in and out of a company.

 A company's success is determined by its ability to create positive cash flows through the normal course of its business operations. 

Cash coming into a company, known as inflows, consists of revenues from the sale of goods or services as well as income from investments. Cash going out of a company, known as outflows, consists of expenses and debt payments.

Cash Flow Statement

The cash flow Statement in finance is the statement that summarizes the movement of cash and cash equivalents that come in and go out of a company. Cash-in and Cash-Out.

It measures how well a company manages its cash position; how well the company generates cash to pay its debt obligations and fund its operating expenses. 

The cash flow statement indicates where money comes from, how money is being spent, how much "Liquidity" (available cash) for payments.


What Are the 3 Types of Cash Flow?

The three primary classifications of cash flow are cash flow from operating activities, cash flow from financing activities, and cash flow from investing activities. All will appear on the statement of cash flows on a company's financial statements.

Operating activities

Include any sources and uses of cash from business activities. In other words, it reflects how much cash is generated from a company’s products or services.

These operating activities might include:

  • Receipts from sales of goods and services. 
  • Payments as: Interest payments, Income tax payments, Payments to suppliers, Salaries and wages, Rent.

Investing activities

Include any sources and uses of cash from a company’s investments. 

  • Purchases or sales of assets,
  • loans made to vendors, or received from customers, 
  • or any payments related to mergers and acquisitions.

In short, changes in equipment, assets, or investments relate to cash from investing. Changes in cash from investing are usually considered cash-out items because cash is used to buy new equipment, buildings, or short-term assets such as marketable securities.

 But when a company divests an asset, the transaction is considered cash-in for calculating cash from investing. 

Financing activities.

Includes:

  • The sources of cash from investors and banks, 
  • as well as The way cash is paid to shareholders. This includes any dividends, payments for stock repurchases, and repayment of debt principal (loans) that are made by the company. 

Changes in cash from financing are:

  • Cash-in when capital is raised, and 
  • Cash-out when dividends are paid. 

Thus, if a company issues a bond to the public, the company receives cash financing, and when interest is paid to bondholders, the company is reducing its cash. 

     


How to Adjust Cash Flow in SMEs?

Adjusting cash flow in SMEs (Small and Medium Enterprises) is an important part of running a successful business. Cash flow is the lifeblood of any business, and it is essential to ensure that it is managed properly.

Create a budget

The first step in adjusting cash flow in SMEs is to create a budget. This budget should include all of the expected income and expenses for the business. It should also include any planned investments or capital expenditures. This budget should be reviewed regularly to ensure that it is up to date and accurate.

Once the budget is in place, it is important to track the actual cash flow of the business. This can be done by tracking the cash receipts and payments on a daily basis. 

This will help to identify any discrepancies between the budgeted and actual cash flow.

Identify areas for improvement

The next step is to identify any areas where cash flow can be improved. This could include reducing expenses, increasing sales, or finding ways to increase efficiency

It is also important to look for ways to reduce debt and increase savings.

Create a Cash Flow Plan

Finally, it is important to create a plan to manage cash flow. This plan should include strategies for managing cash flow on a daily basis, such as setting up a system for tracking cash receipts and payments. 

It should also include strategies for managing cash flow over the long term, such as setting up a savings plan or investing in assets.

Adjusting cash flow in SMEs is an important part of running a successful business. 

By creating a budget, tracking actual cash flow, identifying areas for improvement, and creating a plan to manage cash flow, businesses can ensure that their cash flow is managed properly and that their business is successful.

   

Ur-Serv Business Development LLC focus on enhancing cash flow for companies, 

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