Cash flow management is one of the most important and most ignored financial tools available to business owners and managers. Cash flow management is not accounting! Many business owners fail to recognize that the rules of accounting define when and how transactions are recorded in their financial statements, which is no help when they need to manage their cash for next week and next month. You can also get the best virtual bookkeeping services for non-profit businesses in Burlington, NC.
True cash flow management must be based on a cash flow projection, a tool which forecasts the actual date that deposits (revenue) will be made and when, in the future, expenses will be paid. How important is cash flow? Keep in mind that businesses fail every day because they run out of cash, even though their income statement showed the business to be operating profitably.
What to do when you find yourself in a cash crunch? First, understand the factors that drive cash flow and how you can take control. The following factors have the greatest impact on cash flow:
Accounts Receivable (time between generating the invoice and depositing the cash)
Accounts Payable (time between receiving the invoice for purchases made and your payment of that invoice clearing the bank)
Inventory (time between paying for the materials and depositing the income from the sale of the finished product)