A fundamental objective of financial reporting is assessing the amount, timing, and uncertainty of cash flows being transferred in and out of a business. Only by understanding the cash flow statement, can a company accurately assess its flexibility, liquidity, and overall financial performance. Trying to run a business without adequately monitoring and managing cash flow is like trying to swim upstream without using your hands. Even if you manage to succeed, it will be an ongoing and stressful activity riddled with uncertainty and sleepless nights. It is particularly relevant for startups and small businesses, especially during their first year, when keeping track of these assets is critical for survival.
Here is how you can easily monitor your business’s cash flow through cloud accounting.
What’s Your Breakeven Point?
The first thing you will need to do is to determine your breakeven point. Knowing when your business will become profitable will not directly affect your cash flow, but it will give you an early goal to strive towards, as well as a target that will project your future cash flow.
Once you’ve determined what that breakeven point is, you will be able to make your cash flow projections. This will ensure you will have enough available cash on hand to afford to pay your employees and suppliers. You can use this forecast as an early warning system that will allow you to effectively anticipate various problems down the line and even avoid them entirely.
Cloud accounting also allows for automated invoices. It is another useful tool to keep an eye on your cash flow. Since the system will generate invoices as well as timely reminders to your customers and suppliers, your staff will no longer have to keep track of the process manually. It dramatically reduces the incidence of error, allowing you to monitor your cash flow better and avoid any unexpected shortfalls.
Up-To-Date Cash Flow Information
There is a waiting period between when a sale or expenditure takes place and when that information is written down in a cash flow Excel spreadsheet. What’s more, that data will not provide you with enough perspective until the appropriate charts and graphs are created.
This time discrepancy can’t offer you the necessary up-to-date information to accurately monitor and manage your cash flow. But by using cloud accounting software, this information will be available to you whenever and wherever you need it.
Using Cash Flow Templates
Cash flow statements will provide you with a clear picture of how money moves in and out of your company. Forecasting this cash flow is done on a regular, monthly basis. One right way of keeping an eye on your cash flow is to use cloud cash flow templates as a means of forecasting and recording your available funds.
These are the following templates that you can use:
- The Opening Balance – the cash available to you at the beginning of every month.
- Cash Inflow – this includes all revenue, funding, and loans.
- Cash Outflow – this template will include all expenditures such as salaries, payments, purchases, and investments.
- Net Cash Flow – use this template to deduct outflows from inflows and see the amount saved.
- Closing Balance – the closing balance is where you add the net cash flow to your opening balance, which will then become your next opening balance for the following month.
Monitoring your cash flow by making use of cloud accounting will give you the necessary foresight to always have enough cash on hand as well as to avoid any unforeseen circumstances.
Until the next time,