Small business cash flow is the way cash flows through your business between your customers and you. Your small company’s cash flow may either be positive or negative, depending on how it has been used. What does this mean?
First, accurate accounting, and in effect, accurate financial reporting, play an important role in determining the status of your cash flow.
To determine whether your business is generating an income or not, an accountant analyzes the amount of money coming in and going out of your business. Many IT companies have also found success securing immediate cash with invoice factoring. You can obtain an accountant’s opinion by getting an estimate, a financial statement from the Internal Revenue Service, or ask for a tax return. The Internal Revenue Service will require you to file an official tax return for your company.
The second step is to determine the current value of your small company. This can be done by making an inventory of your company assets. After doing so, you will want to examine whether your company has sufficient cash on hand to keep operating the way it does now. Your cash reserves should be enough to cover unexpected expenses, which can include customer service, legal fees, inventory repair, payroll, and marketing costs.
If you are thinking of starting a new business, then you have to determine your current market value, the cost of your equipment and supplies, taxes, overhead, rent, and financing options. Calculate the current value of each asset that is related to your business. Assess if you have a surplus or a deficit in relation to your total assets.
Cash that is left after assessing your current assets is the amount that you need to raise capital, pay for advertising, and pay other business expenses. Once all of your assets have been assessed, the amount of money that is needed to start a new company is calculated. You should be aware that any new assets you purchase can lower your cash balance, but they are not necessary for your company. Any money you have left is then given to your bank account or the owner of the business to be used for the start up or ongoing operations of the business.
A small business must also have a working capital management system to be able to meet the cash needs of your business.
A working capital management system is a program designed to track and monitor all of your payments, transactions, and manage a reserve fund. This system is used by banks, credit unions, and other institutions to keep track of your company’s funds.
If you are in need of a small loan to fund your company, make sure that you find out if there is a business line of credit available from your bank or other source. You may need to have your accounts with other banks approved in order for them to provide you with a personal line of credit, but you cannot obtain a personal line of credit if your business does not have a business line of credit from the bank. Also, you will have to provide proof of income and assets before they approve you. Some banks do not allow you to borrow from their own accounts.
With proper accounting and financial reporting, your business cash flow will continue to be beneficial and consistent, allowing your small company to grow.
When you are in need of capital to expand or purchase more machinery or invest in new equipment, be sure that your accounts are accurate and detailed enough to satisfy the lending institution. Even when you receive a line of credit, the bank may require you to maintain a certain level of your accounts as a security. You can work with your accountant and financial consultant to develop an effective accounting plan that will help you meet your cash needs while keeping you and your customers happy. Be sure to follow the terms of the agreement you enter into, as failure to do so can result in your accounts being frozen or liquidated without notice.