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bookkeeping and taxes

Understanding Your Company’s Cash Flow Leads to Greater Profits

Understanding your own companies’ finances is a key component of your company’s success. This financial visibility comes from good record keeping and reporting these records in such a way that a business owner has information to make smarter business decisions. One of the most important steps to keeping your company’s finances internally visible is by managing cash flow and creating a Cash Flow Forecast. While this may seem basic, studies have shown that 50% of all profitable businesses fail due to the lack of cash and proper cash flow management.


Financial Visibility Comes from Good Record Keeping

For many companies, an accountant acts as their historian tracking the costs, revenue, and profits of the company. While the accountant plays a vital role in bookkeeping, payroll, auditing, tax preparation and more, it is essential that he or she presents these documents in a way that allows for the owner to make smart business decisions for the growth and profit of the company.

For example, proper costs and revenue record keeping allows for a company to understand and surpass their break-even-point and make a profit. Understanding the break-even-point, the point where there is no loss or gain in the production of a product or service, allows for better strategic planning of marketing campaigns, new product development, the acquisition of new assets and much more.


Creating a Cash flow Forecast

Take the time to create a Cash Flow Report and you are likely to increase your profits. Track both incoming and outgoing cash flow quantities and schedules in your records. Make sure you keep records of cash sources from more than just sales income; track tax refund and rebates, investment money, grants, royalties, franchise fees, the sale of assets and more. Tracking cash outflow expenses on administration and operational costs needs to include material production costs, salary and employee pay, worker benefits, utilities, rent and real estate, marketing, taxes, bank and business fees, and more.

Cash flow is all about timing and is often forecasted and reported in monthly periods. Start with an understanding of your opening cash or bank balance; this is the actual cash the company has access to at any given time. Accurately add your cash inflow and deduct your cash outflow for the period. Take extra care in evaluating non-fixed or variable costs, as these often hard-to-predict-costs can mean the difference between profit or loss. At the end of the record period, you will have a closing cash balance that becomes you’re the new opening cash balance for the next record period.

The more accurate and timelier you compile your cash flow reports the better you will be able to forecast and predict future cash flow revenue. For each reporting period compare your forecasted cash flow to the actual cash flow and identify the areas of differences. Over time you learn what financial, marketing, sales, and general business strategy is working for your company. You can identify areas of risk and opportunity for growth, and plan for patches of lower consumer demand and profits.


Great Financial Professionals Produce Great Financial Reporting

NOW CFO provides outsourced consultants that can help at any level of your cash flow understanding. From experienced and skillful part-time accountants for general bookkeeping, to interim Chief Financial Officers who can help your company thrive by assisting with business strategy and management. A NOW CFO consultant promises to provide accurate, timely, relevant, and insightful financial data to bring your company’s cash flow understanding into focus.■

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