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Guide to Cash Flow AnalysisOne of the most important metrics to track in any business is cash flow. The amount of cash flowing into and out of your business plays a major role in your ability to function on a day-to-day basis. It also affects your growth potential. Lack of cash is a common cause of business failure. The best way to understand your business’s health in this regard is to perform a cash flow analysis.

What is Involved in Cash Flow Analysis?

In order to track your flow of cash, you need to perform a cash flow analysis that identifies every single dollar that flows into and out of your business. If you have a dedicated bookkeeper or accountant, he or she should perform this task once per month. Smaller businesses may want to handle the job themselves rather than paying an expert to do it. There are several good accounting software programs that simplify the task of generating accurate statements.

Start by figuring out your business’s total cash balance at the beginning of the period you’re calculating. Fill in both inflows and outflows, separating them into categories as necessary. The most common category is operating inflow and outflow. Inflow includes sales and receivables. Outflow includes payroll, inventory and other operating expenses such as rent, utilities and any monies paid out to suppliers or for services associated with the business.

If your business invests in assets not needed for daily operation, you’ll need to create a category for investment inflow/outflow. This includes real estate or investment securities as well as equipment. Another category, one that’s mainly relevant for larger companies, is financing activities. This is for issuing stock or dividends to stockholders or buying back stock shares.

Your statement will be the sum total of all these activities. Of course, the real point of this task isn’t simply to come up with a figure but to learn from your results.

Analyzing Your Statements

There are certain signs and patterns to look for that can help you improve your situation so more cash is flowing in and/or less is flowing out.

  • Consider the age of your business and seasonal fluctuations. Newer businesses may take time to show a profit. Some businesses make the majority of their profits during certain seasons such as the summer or the holidays. You have to consider these factors when looking at your statement.
  • Unusual or one-time investments. For example, if you purchased a costly new machine, it’s natural that you’ll show a negative cash flow for a time.
  • Unpaid invoices. Many businesses experience cash shortages due to uncollected payments. The gap between sending products or performing services and actually getting paid limits the amount of cash at your disposal. 

5 Ways to Improve Cash Flow

A single statement only tells you so much. Fluctuations may occur for any number of reasons, including those mentioned above. What you’re really looking for are patterns. Here are some strategies that can help you see more encouraging results from your statements:

  • Look for ways to save money. Try to negotiate better terms with suppliers. Adjust staffing to reflect seasonal needs.
  • Make your invoicing process more efficient. Follow up promptly with late-paying customers.
  • Consider raising prices.
  • Try or put more effort into economical marketing strategies such as social media, special promotions, loyalty programs or email marketing.
  • Seek business financing. In addition to business loans, consider invoice factoring, which lets you collect payment for invoices right away.

A cash flow analysis is a vital tool to help you understand the health of your business. Whether you do it yourself or outsource it, make sure you perform this task on a regular basis. Understanding the movement of cash into and out of your business helps you identify areas that need improving.

Ready to Improve Your Cash Flow?

If you need help with cash flow for your business, learn how invoice factoring can help your business. Riviera Finance has been helping businesses with cash flow problems for more than 50 years. See how invoice factoring can help your business.


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