Best practices for managing your company's cash flow

Manage cash flow is one of the secrets for companies that want to guarantee long-term operation.

Main topics:

The importance of cash flow management for the success of your business.
How to make accurate projections
Effective strategies to control cash inflows and outflows.
Techniques to increase cash inflows and reduce unnecessary expenses.
Benefits of good cash flow management for your business.

What is cash flow management?

The practice of managing cash flow consists of evaluating the inflows and outflows of money from the business's accounts.

This allows the manager to assess whether revenue is adequate and make projections for operational improvements.

Understanding the importance of cash flow

The true purpose of cash flow management is to analyze liquidity and meet financial obligations, practices that aim to avoid debt and losses.

This way, the company can remain in the market and guarantee its operations through investment in improvements.

Difference between cash flow and profit

It is important to understand that cash flow and profit are different things, because the amounts that come in and out of the cash register should not be considered as net revenue.

This is because, while cash flow concerns everything that enters and leaves the company's cash register, profit only demonstrates liquidity, that is, the difference between what the company receives and spends on its operations.

Therefore, understanding this difference is essential to managing the company's finances well.

Profit shows whether the business is profitable, but it does not say whether the company has cash available.
Cash flow shows whether a company can pay its debts and take advantage of opportunities.

Therefore, managing cash flow is an important skill for entrepreneurs, as it allows them to maintain the company's financial health.

++How to control costs in your business and key indicators (valornoticias.com).

How to make a cash flow projection?

Managing cash flow is essential to your company's financial health, so making a good projection is crucial.

This involves analyzing cash inflows and outflows, so it's important to use financial planning tools and techniques.

Here are some tips for good cash flow projection:

Raise all expected revenues: Take a good look at your sources of income, such as sales and investments.
Identify expected expenses: List all expenses, such as salaries and taxes.
Use financial planning tools: Use spreadsheets or software to organize your cash flow.
Consider alternative scenarios: Make projections for different scenarios, such as changes in sales.
Constantly update your projection: Monitor and adjust your projection as your business changes.

Finally, with a good cash flow projection, you'll have a clear view of your financial situation, which will help you make strategic decisions about managing your business.

Strategies for managing cash flow

Managing cash flow is not simply about assessing how much money comes in and how much goes out.

This is because, in addition, it is necessary to evaluate what the sources of income are, and where the money is going.

That said, to find these answers, you need to follow some strategies. See below:

Cut unnecessary expenses

As important as evaluating what comes into the company is understanding what is taking the money out.

So, when managing cash flow, it's important to prioritize cutting unnecessary expenses, as this will help you balance your accounts for the benefit of your company's financial health.

Here are some ideas:

Reductions in office costs such as rent, utilities, and office supplies.
Optimization of travel and entertainment expenses.
Renegotiation of contracts with suppliers and service providers.

Negotiate deadlines with suppliers

Negotiating longer terms with suppliers is very important, as it keeps the money in your hands for longer, which helps maintain a balanced cash flow.

Strategy	Impact on Cash Flow
Cut unnecessary expenses	Increases net cash inflows
Negotiate deadlines with suppliers	Improves the balance between cash inflows and outflows

So, with these strategies, you'll take the first steps toward managing your cash flow more efficiently.

How to monitor cash inflows and outflows?

Simply saying that managing cash flow means monitoring the inflow and outflow of funds may not be very explanatory.

That's because it's important to understand resources and strategies to achieve this control in a practical and efficient way. Here are some tips:

Tools for financial control

There are several tools that can help you manage your cash flow. Here are some options:

Spreadsheets such as Excel or Google Sheets, which allow you to create customized reports of inputs and outputs;
Financial management software, such as Conta Azul and QuickBooks, which integrate all your company's information into a single platform;
Cash flow control apps, such as Mobills and Organizze, allow you to track your finances on your phone.

These tools provide detailed cash flow analysis and help identify patterns and opportunities for improvement.

So, with this information, you can make more informed decisions to manage your company's cash flow.

Tool	Features	Price
Excel/Google Sheets	Customizable spreadsheets, formulas, and charts	Free
Blue Account	Integrated financial management, issuance of invoices	From R$ 49/month
Mobills	Expense control, accounts payable and receivable	Free with paid options

Techniques to increase cash inflows

Just as important as avoiding unnecessary expenses is ensuring that the business receives increasing cash flow.

This is because the greater the entry and the smaller the exit, the greater the liquidity of the business, that is, the profit.

Therefore, it is important to invest in strategies and techniques to encourage the entry of financial resources into the company's accounts.

That said, check out some ideas below that might help you with this mission:

Efficient collection strategies

An efficient billing system is key to more cash inflows, and some steps are essential:

Set clear payment terms and communicate them clearly to customers.
Send payment reminders before they're due to avoid late payments.
Offer multiple payment methods, such as bank slip, card, and bank transfer.
Offer early payment discounts to encourage customers to pay faster.
Use automated tools to improve billing.

By improving collection strategies, you avoid defaults, which improves cash flow predictability.

Strategy	Benefit
Establish clear payment deadlines	Avoid delays and keep cash flow predictable
Offer diverse payment options	Facilitates and speeds up the receipt of payments
Adopt early payment discount policies	Encourages customers to pay off their debts faster
Use automated billing tools	Optimizes the billing and receiving process

Maintain emergency reserves

If you want to avoid losses, it's important to plan an emergency fund when managing your company's cash flow.

This is because this type of reserve protects you in times of decline, when revenue declines, and without adequate planning the company may face difficulties in maintaining operations.

So, to know how much your reserve should be, consider the following steps:

Calculate your company's fixed costs for 3 to 6 months. This includes rent, salaries, utilities, and other expenses.
Add a safety margin of 20% to 30% of fixed costs. This helps deal with unforeseen events.
Keep this reserve in an easy-to-access bank account so you can quickly access it when you need it.

Finally, by managing your cash flow well and setting aside funds for emergencies, you ensure your business continues to operate even during times of crisis.

Emergency Reserve Calculation Example	Value (R$)
Monthly Fixed Costs (rent, salaries, utility bills, etc.)	50.000,00
Emergency Reserve (3 months of fixed costs + additional 30%)	195.000,00

Benefits of good cash flow management

Maintaining control of cash flow is an essential practice to ensure the financial security of the business.

However, many companies still prefer to postpone this task. If you're one of them, it's important to understand the main advantages of this practice.

This is because, this way, you will certainly change your mind and start managing your company's cash flow more closely.

Avoid default

Keeping a close eye on your cash flow helps you anticipate financial problems, as you can take early action, such as talking to suppliers or improving your billing practices.

This way, you avoid defaulting and maintain the financial health of your business.

Growth opportunities

By managing cash flow, it's easy to see when it's time to invest or grow.

Furthermore, a good cash reserve allows you to act quickly and take advantage of growth opportunities, which strengthens your market position.

Finally, it is clear that this type of management favors the financial stability of the business and also provides favorable conditions for growth.

Conclusion

In this content, we were able to understand that managing cash flow goes far beyond evaluating what comes in and goes out of the company's revenue.

This is because this practice aims to ensure that the business is earning and spending responsibly, which favors stability and growth.

Therefore, if you don't already have this practice in your company, don't waste time and start doing this control as soon as possible.

Economy

Valor Notícias Content Team 30 de August de 2024