For small and medium-sized enterprises, the phrase “cash is king” is used frequently. But many business owners wonder why it is so important. What happens if your organization runs out of money? Most people know that if the business runs out of money, it fails.
It’s important to note that being profitable doesn’t necessarily mean you’re cash-flow positive. Even though their financial records indicate a profit, many companies have really gone bankrupt due to a cash flow problem. Here is a quick look at the importance of small business cash flow management.
Monitoring and Analyzing Cash Flow
Most businesses want to expand at some point. After all, the bigger the business, the more profit they will make. However, expansion cannot happen with small business cash flow management. To expand, businesses will need an influx of cash, but without monitoring their cash flow, they won’t know how much they need or when they will need it. Cash flow management allows a business to look at patterns of income and expenses, allowing the business to see where the money is going. It also allows them to see where they can make cuts in expenses without hurting the business.
How Often Should Businesses Look at Cash Flow?
Achieving a positive cash flow is not about luck. It’s about hard work and not giving up. The only way to achieve a positive cash flow is to closely monitor where the cash is going, including money coming in and money going out. The SBA strongly encourages businesses to monitor their cash flow every month. This helps ensure they have enough cash on hand to cover that month’s expenses. If there is not enough cash coming in to cover expenses, the company knows it needs to take action to correct that the following month.
To know more information contact Cash Flow Mojo Software.
