Planning and organization are fundamental requirements for good financial management and, in this respect, cash flow is essential to structure the inflows and outflows of resources, helping to control the daily financial movements and enhance the economic results of the enterprise.
Through the analysis of this information, the manager is able to measure whether the company is growing or not, and to make the best decisions for the development and sustainable growth of its business, regardless of size or area of operation.
Do you want to know more about the importance of cash flow for the company? So, continue reading this post and check it out!
What is cash flow?
It is a basic instrument for planning and controlling financial transactions in a given period of time. With it, the inflows and outflows of money are controlled through detailed records.
In practice, cash flow is a true database that allows a daily, weekly and monthly view of operations. Its main objective is to calculate and project the available balance in the company so that there is always working capital to be used in investments or eventual expenses.
It must record all receipts (cash and credit sales, receipt of trade bills, etc.) and all payments, such as cash and credit purchases, payment of expenses or payment of trade bills.
How important is cash flow?
The future of a business must be planned based on information – historical and current – so it is necessary to gather as much data as possible to develop financial intelligence .
Therefore, cash flow is extremely important, as it gathers vital information for the manager to keep the financial life of the company organized and a permanent liquidity situation.
How does this tool help in decision making?
The cash flow allows an analysis of revenues and expenses, projecting a more accurate view of the company’s financial situation, providing the necessary subsidies for decision making .
In addition to assessing the organization’s cash availability and liquidity, this tool can anticipate some important decisions, such as:
- investment planning;
- the best time to make new acquisitions;
- the cost reduction without compromising profitability;
- the elaboration of promotions to move products stopped in stock;
- the need to apply for loans;
- negotiation to extend deadlines with suppliers.
These and other strategic actions allow possible financial setbacks to be avoided or minimized, so that the company is not left in the red. In this sense, the importance of cash flow is undeniable.
How to make an efficient cash flow?
Since the calculation is made from the balances in the bank accounts and the money available in the organization, an efficient cash flow must, in addition to analyzing the financial movements (inflows and outflows of funds), cover the available budget and the plan company business.
This will allow a more precise basis for short, medium and long-term decisions. To do it properly, it is also necessary to pay attention to some procedures, such as:
- carry out the financial inventory;
- keep data constantly updated;
- define a periodicity (daily, weekly or monthly) for analysis of the reports .
The importance of cash flow goes far beyond the control of the company’s financial health, as it also has a predictive character, allowing the realization of strategic planning and ensuring that the business becomes more robust.
So, did you understand the importance of cash flow for the company?
Do you want to acquire even more knowledge to improve the management of your business? Then you must read guides about Digital Labels as well… grow business!!