Cash flow: how to track and analyze effectively?

Mastering finance is relevant for any undertaking and, therefore, it is essential to understand how to monitor cash flow. This monitoring process is a management skill that can support business sustainability and growth.

Cash flow indicates financial health and balance between resource inflows and outflows. So its follow-up tends to reveal patterns, help to identify potential problems and provide information for making strategic decisions.

In this article, you can check out why to monitor cash flow, its main points of analysis and how to control it efficiently.

Read on to find out the details!

What is the importance of tracking the company’s cash flow?

Cash flow is a tool that allows the company’s cash movements, providing a clear view of the financial balance. This balance facilitates the planning of future actions, from investments to paying off debts.

Therefore, monitoring the company’s cash flow is essential because it provides a solid information base, linked to the reality of the business. Thus, it is possible to base economic decisions.

In addition, by monitoring the cash flow, it is possible to have a predictability of the resources. This factor helps to identify periods of scarcity or financial abundance, which are fundamental for business strategies.

Likewise, this type of management reveals whether the establishment is generating profit or loss. It is possible to discover that that week that appeared to be promising in terms of profits, in reality, produced earnings that were not enough to cover the costs, for example.

With frequent cash analysis, it is possible to assess the effectiveness of current strategies, providing subsidies for corrections and improvements.

What are the main cash flow analysis points?

As you’ve seen, tracking cash flow plays an important role in the financial health of a business. However, the success of this follow-up depends on some essential points.

See what they are!

cash balance

Knowing the initial cash balance is essential to understand the financial level of operations. That is, at that moment it is necessary to identify how much cash is available and the amounts in bank accounts, which allow easy access.

It is also worth considering other assets easily convertible into cash, such as investments with daily liquidity. However, if your business has other less liquid assets, it is advisable not to include them in this opening balance.

income and expenses

When tracking cash flow, it is crucial to classify transactions to accurately understand the sources and destinations of capital. Therefore, it is necessary to separate the inputs and outputs — including creating categories —, facilitating the visualization of movements.

By assessing the flow of inflows, it is possible to identify sources of revenue and their consistency. In practice, this provides insight into the financial health of the venture.

Likewise, the outflow analysis reveals expenditures and expenses. This item allows the identification of points that require greater control and possible cost reduction opportunities.

In the daily context, understanding this issue is of great value, as it allows tracking the path of money in the enterprise. In addition, having this level of understanding can help you make decisions quickly and accurately.

flow projection

In addition to recording the transactions that actually took place, it is interesting to project financial inflows and outflows. To do so, it is worth basing on the company’s trajectory, using data from equivalent periods, for example.

Periodic updates

Another point of attention is the need to periodically update the cash flow. Any type of information, if it does not correspond to reality, can lead to misinterpretations of corporate finances and impact decisions.

It is also worth noting that cash flow alone is not capable of providing all the answers. Therefore, resort to other financial indicators to have more robust analyzes and support choices in business management.

How to track cash flow efficiently?

After knowing the relevance of cash flow monitoring and its main points, the time has come to find out how to carry it out.

Check out the top tips!

Identify your costs and gains

Initially, you need to make a list of all expenses – whether fixed or variable. The idea is to understand, on average, what is the outflow of resources from your budget and how often these movements happen.

Also, it is necessary to identify the origin of your income. If there is more than one source of earnings — such as providing services and selling products — include the information separately in the financial control.

Name the categories for each record to be made

Cash flow tracking must occur in an organized way to be really useful. Therefore, it is worthwhile to have categories to classify the recorded movements. In expenses, for example, you can create categories such as: personnel expenses, suppliers, among others.

It is also important to avoid creating categories that are too broad, such as “miscellaneous expenses”. This measure can generate ambiguity and reduce control over the true causes of the most relevant expenses and revenues.

Record financial transactions

Once you’ve determined how the records are to be made, include data for all accounts receivable and payable. Remember to write down what is still outstanding and what has already been paid, among other relevant information.

It is essential that all financial transactions are in your cash flow control. Therefore, it is recommended to make daily and complete updates. Another tip is to have financial management software to automate the task and facilitate processes.

Analyze results and generate insights

Finally, examine your cash flow and understand your company’s financial dynamics. Use the data to make projections, evaluate results and define how to best allocate capital. With proper management, the tendency is for good results to become increasingly present.

As you learned, knowing how to monitor cash flow efficiently is essential for the financial management of the business. The strategies and practices presented provide a solid foundation for you to better manage finances and make informed decisions.