Cash flow is the lifeblood of a healthy business.  Learning to manage cash flow is essential for both accounting professionals and managers.   Positive cash flow is obtained when the business brings in more money than it spends.  This makes expansion possible, keeps investors happy and helps the business maintain a competitive edge. Here’s a brief rundown about how to manage cash flow: Step 1: Analyse In order to maintain a healthy positive cash flow, you need to make sure that the business has a sufficient amount of cash every month to cover future payment obligations. You must have a clear idea of both your cash inflows and cash outflows. The primary cash inflows include:

• Payments for goods or services from your customers
• Loans
• Interest on invested or saved capital
• Investments made by shareholders

The primary cash outflows are:

• Purchase of fixed assets
• Purchase of raw materials
• Loan payments
• Employee wages
• Operating expenses
• Dividend payments
• Taxes

Step 2: Adjust Depending on your situation, you may need to adjust your cash flow. For example, if the business is operating at negative cash flow, then you need a plan to reach a positive one. If the business is already experiencing positive cash flow, then you should develop a plan to increase your cash flow—especially if the business has plans to expand in the near future. You will learn more about both of these concepts by taking a financial literacy course. Doing any of the following will improve your cash flow:

• Collect unpaid receivables
• Increase sales
• Obtain loans
• Issue invoices quicker
• Tighten credit requirements for existing customers and vendors

Colour Accounting™ is our financial literacy course. Understand cash flow and more in just one day without a boring spreadsheet in sight!]]>