How to Do a Cash Flow Analysis for Small Businesses
Cash flow analysis is an essential step in business planning. This financial statement helps business owners understand their business’s liquidity and overall health. It also allows the owner to take corrective action and improve the situation before it gets out of control. The income statement and balance sheet show the absolute dollar amounts of each account. The statement of cash flows, or SFAS, shows the changes in each account from the prior period to the current period. It resembles the actual transactions in a business’s bank account.
To do a cash flow analysis for a small business, first, determine the sources and uses of cash. Then, decide which activities are most profitable for the company. For example, if you offer credit, you must determine if extending that credit to new customers makes sense. It’s also essential to analyze your sources of cash. The source of your cash should show you how the money comes in and out of your business.
Once you have determined the cash requirements, you can track how much money you need to run your business. Your cash balance will change over time as your business grows or shrinks. For instance, if you’re in the construction business, you may need to borrow money from a loan company. This will allow you to track your spending more accurately. This method is also helpful for those businesses that are facing cash crunches. By keeping a detailed cash flow analysis, you can plan for emergencies and make necessary adjustments in your business.
However, managing cash flow can get knotty, not to mention the proper knowledge and the time needed to analyze your cash flow. Luckily, some tools are available that can help ease your worries about cash flow analysis: the accounting software. Accounting software can help you manage financial transactions and record-keeping. It can track expenses and automatically track mileage and expenses. You can also reconcile bank statements and manage your inventory levels.
Accounting software will help your business run more smoothly and profitable than ever with these features. If you aren’t sure what you need or what you should do, contact an accountant to help you decide which options are suitable for your business.
Are you looking forward to exploring more about small business bookkeeping software, or you’re searching for the best small business accounting software? Better check more of the essential details we have at the infographic from KIPPIN.