An essential tool for business success, it structures income and expenses, guiding decision-making, both in situations of deficit and positive balance.
Whether in a small business or a large company, cash flow is the financial control known in the consulting world as a “crystal ball”. This tool allows the entrepreneur to predict part of the future of his company based on the financial flow. A lack of money may require raising funds on the market, while a surplus leads to a rational decision about where to apply these resources.
“Cash flow is a consolidated management control that encompasses the entire structure of the company’s income and expenses, from revenue to fixed and variable costs. Therefore, it is essential that the entrepreneur has all other management controls at hand to consolidate them in the cash flow,” explains Sebrae’s Customer Relations Manager, Enio Pinto.
According to him, when the cash flow balance is negative, the entrepreneur can, in advance, determine which is the best line of credit, according to the interest rate, grace period, payment periods and bahamas whatsapp data collateral requirements. And then, raise funds with the best possible conditions. When there is money left over, the entrepreneur evaluates whether it would be a case of reinvestment or a financial investment.
Enio emphasizes that financial control reflects the performance of the different areas of the business. “If the entrepreneur has fewer sales than necessary to cover costs, there will naturally be a deficit. The way to solve this problem is to apply the diagnosis, identify the deficiencies and come up with a path of solutions. It is very difficult to reverse the situation with an isolated action, and that is where the support of a consultant or mentor comes in”, he adds.
Check out the expert's five tips on cash flow:
1. Keep control always up to date
This financial control is very dynamic. Basically, it is a comparison between what the entrepreneur does in terms of planning, in theory, and what is actually done, in practice. It is periodically compared with what actually happened in terms of financial transactions. In this way, it becomes increasingly more perfect.
2. Automate processes
The ideal is to use a system or work with automated spreadsheets. Although very important, the task of filling in the data should not take up a large part of your time. The flow is strategic for the manager to direct the enterprise, assisting in the decision-making process.
3. Evaluate the business and readjust the route
Financial control reflects the performance of the different areas of the business. If the entrepreneur is having fewer sales than necessary to cover costs, there will be a deficit. To correct this negative balance, it is necessary to act on two fronts: increasing sales, improving revenues, or making more rational investments.
When the forecast is positive, it is important to define a reinvestment percentage – always focusing on the customer. Team, innovations and professional management are essential for this positive balance to be recurrent. Another interesting path is to set up a reserve fund for external variables, as we have seen now in the pandemic process.
4. Measure your business
There is a saying in the market that says “what I can’t measure, I can’t manage”. So the tip is to “keep your cash flow updated”, so that it can fulfill its mission, which is to be a daily reference tool for the entire decision-making process. All companies, including small businesses, need to be data driven, that is, their management must be based on consistent data.