In this article, we are going to discuss cash flow and its head, how to identify cash flow if you have a small business, what is cash flow statement also the importance of cash in a small business.
Cash flow is one of the most vital extensions of every enterprise. Many Small businesses have less information about cash flow due to this most of them suffer from cash flow. In a Survey, it is found that the majority of small enterprise ( 61% ) faces cash flow issue and about 32% of them suffers to pay their vendors, employees, loan, and themselves. The survey contains 3,000 small business owners from India, the United States, Australia UK, and Canada who have 0-100 employees rate in their companies.
To know more about the survey -
What is Cash Flow?
Cash flow is the moment of the flow of cash in outside and inside of a business. When businesses receive money from outside through - customers, banks, investors, etc. This is known as positive ( + ) cash flow. When businesses have to spend money or the flow of money is outside of businesses. this is known as negative ( - ) cash flow. For example - paid loans, buyback equity, buying land, and many more.
How to identify cash flow for small businesses?
If you want to track the cash flow of a month. Then check your cash at starting of the month and compare it with the cash you have at end of the month. If the cash is more went out than at the end of the month then it counts as negative cash flow. If the money is left at the end of the month this count as positive cash flow.
What is a Cash flow statement?
To grow your business you must have to track your finances and with the help of a cash flow statement, you can track your financial transactions. The cash flow statement consists of 3 activities investing, operating, and financing.
Head of cash flow?
The 3 pillars or heads of cash flow are-
1. Investing
2. Operating
3. Financing
1. Investing
Investing - property or equipment bought or sell, acquiring a new business, stocks/equity purchase or sale, entering into different products line, or any other investments which are made for the long term is known as investing cash flow.
If a company has bought assets like land or invested its money for the long term. This comes under negative cash flow. If a company sold its assets due to which the company got inward cash is known as positive cash flow.
2. Operating
Operating - commission or revenue sharing, paying employees, hiring or firing employees, marketing and sales of your products or services, paying cash as tax or rent, etc this is known as operating cash flow.
If a company spends its money on hiring new employees, marketing its products or services, cash paid as salary, making products, etc this flow of money is outside of the company. So it is also counted as negative cash flow.
In a company when someone buys goods or services, cash is released from debtors or in any other form through which the flow of cash is inside the company then this count as positive cash flow.
3. Financing
Financing - paying credit card loans, buying loans, paying or receiving cash from dividends, etc. is known as financing cash flow.
When a company spends its cash on buyback equity, paid loan, etc this come under negative cash flow. When a company receives cash from selling equity, buying loans, etc the comes under positive cash flow.
The Importance of Cash Flow Planning for Your Small Business
Cash Flow has a tremendous effect on your business. If you have a positive cash flow you can spend more money on marketing, sales, property buying, etc which you think can extend your business growth. If you have a negative cash flow and it goes on increasing then there is a majority of chance that your business get out of the market.
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Conclusion -
Cash Flow (C.F.) is the total amount of cash in and out of business. When the inflow of cash is more it is known as + C.F
When outflow is more it is known as - C.F. It consists of 3 heads. Which are used in Cash Flow statements to track finances. Businesses use this statement to expand their growth.
