Cash flow management can be considered one of the most important activities in running a business. Having a clear view of the company’s financial flow is a way of predicting risks and maintaining a healthy debt balance .
There are several ways to carry out cash flow management, and Cash Management is among the most efficient ways to carry out this process. Want to know why? So check out what we prepared on the topic!
Cash flow management: what is it?
Before we talk about cash flow management, we need to define what cash flow is .
Cash flow is the sum of all the company’s cash inflows and outflows. In addition to the temporal criterion, cash flow can also assume different classifications based on different analysis objectives and calculation methods.
Among the main types of cash flow we can mention:
– operating cash flow: based on the company’s revenues and expenses to demonstrate the financial results and the variation in working capital;
– direct cash flow: receipts and payments are used, without considering discounts, to obtain a clearer and more up-to-date view of cash available;
– indirect cash flow: based on the analysis of profits and losses, adjusted by economic items, present in the Income Statement;
– free cash flow: is the cash balance after payment of all obligations, and measures the ability to generate positive results in the short, medium and long term.
Cash flow management, in turn, is the process of monitoring, analyzing and optimizing the company’s financial movements in order to avoid long periods of negative cash.
What are the benefits of cash flow management?
In addition to mapping financial difficulties for the company and bringing more stability and predictability , cash flow management also results in other advantages, such as:
Help with debt control
Imagine that a company’s investors start to monitor its cash flow more closely, from the moment it begins to show high levels of indebtedness.
This could be because cash flow management helps determine whether the company is operating on leverage or if it is a sign of bankruptcy .
After all, by controlling financial inflows and outflows, this management can contribute to keeping the company’s debt at a healthy level.
Identification of trends and opportunities
As cash flow management can allow analyzing financial movements from different perspectives and time horizons, it is easier to identify trends and opportunities to increase the company’s sales.
For example, imagine the cash flow of an ice cream parlor. It is quite likely that the store’s sales revenue tends to decrease in the winter and increase in the summer.
In addition, revenue from the sale of water bottles also demonstrates that it follows this trend and is directly related to the sale of ice cream. This could be a point of opportunity.
How to manage cash flow?
Mismanagement can have very negative effects on a company. Therefore, regardless of size or business segment, it is suggested that businesses invest in good cash flow management.
Thinking about it, we brought some tips for those who want to develop good management.
1. Record all financial transactions
An alternative so that the cash flow analysis is not distorted and divergent from reality, is to record all cash inflows and outflows . Even the expenses that you deem of minor importance.
After all, even the smallest expenses can add up and result in big differences over longer periods of time.
2. Invest in inventory management
Inventory is also a type of company capital that is part of working capital, but does not generate interest or profit .
As a result, when the company has a large inventory standing still without any projection of use, the cash flow can suffer a very negative impact. After all, the money invested is usually at a standstill, without generating any potential return for the business.
Therefore, it is very important to invest in good inventory management to enable inventory and cash turnover.
3. Use technology and financial services to your advantage
Cash flow management requires attention to detail, and the smallest recording error can lead to major setbacks down the road. Therefore, looking for tools that increase your assertiveness can be a good option.
A financial software that can help to avoid manual errors, facilitate analyzes and optimize the management process. Likewise, the adoption of some financial services, such as Cash Management , can be a great ally!
Cash Management as an ally!
Cash Management is a service that brings together several tools that help optimize financial inflows and outflows, seeking to minimize risks and enable a tolerable level of liquidity and indebtedness for the company. And it is precisely for this reason that he is a great ally of cash flow management.
Generally speaking, Cash Management works similarly to any other bank account. The difference is that the account of the company that has this contracted service has some additional features, such as issuing bank slips and automatically reconciling expenses .