Taking care of a company’s finances is essential to ensure that it can keep running. That is why it is very important to understand what cash flow is.
In a nutshell it is possible to say that cash flow is the movement of all incoming and outgoing cash. Although it is a simple tool, it can be fundamental for the success of the business.
Whenever an account is paid or money is received from customers, detailed records must be kept for follow-up. The amounts that are expected to be received can also be accounted for, since they allow for future planning.
This is a tool that helps control finances and that can have different types of cash flow according to its purpose, for example, operational cash flow, free cash flow, cash flow for investments, discounted cash flow, projected cash flow, indirect cash flow, and others.
The importance of having a cash flow:
It is of utmost importance to have an operational and functional cash flow to be able to understand the financial health of the company and plan what the future of the organization will look like. A few points demonstrate why it is important to have this monitoring.
● Being able to identify the company’s cash availability and liquidity.
● Decide on future investments without jeopardizing financial resources.
● Plan to apply for loans and afford to pay them back.
● Know if the business is developing as planned and providing a return.
● Assist in managing expenses.
● Serve as a support in decision making.
● Avoid debt due to lack of financial control.
These points can only be considered beneficial if there is an effective control, this will ensure that decisions are taken in the short, medium and long term in a more assertive way.
How to control the cash flow:
One of the big problems of companies is that the cash flow how to do ends up being a subject little discussed and the control does not occur in the most efficient way. Many times this monitoring is done by various spreadsheets that are not centralized, thus, the information gets lost and is not easily located.
Ensuring that the entire process is automated can improve control and make sure that the results are always accurate. Automation is a great ally, because it ensures that no data is lost and that the information is accessible.
Besides automating the systems, it is necessary to ensure that they are integrated, and this can be achieved with the use of a good ERP. With this, all inflows and outflows will be visualized in real time and you will know exactly the amounts available in cash.
To ensure that this process is working properly, it is not enough just to record all the information, it is necessary to make sure that it is correct. Reports must be generated and analyzed on a regular basis to identify possible points of failure and provide corrections.
Ensuring that the operational cash flow is working properly prevents the company from acquiring unnoticed debt, keeping its accounts up to date, and having sufficient resources to ensure financial turnover.