Evaluating the Financial Health and Cash Flow of Your Business

by Donna Sovie | Business, Finance

At Check and Balance Business Solutions, we pride ourselves in assuring that businesses are financially healthy and profitable, relieving the stress of finances to allow more time and energy to be focused on the heart of your business. Here are some tips on how to assess your business’s current financial state.

In order to understand your company’s financial health, you can measure data points in your business that give you the insights needed to make informed and smart decisions. 

Your revenue is a measure of how much money is coming in from the sale of your product or service being offered to customers.  The receipts total, or money received, is different from revenue in that it measures the payment you have already received from your customers. This is an important index for companies that sell with payment terms, as outstanding receivables and actual cash received are different. Both metrics will help you evaluate how much each line of your business is generating in sales and how quickly you are collecting on the product or service rendered. 

Keeping track of your debts within the business is also vital to support cash flow management.  Knowing what you owe on loans, credit cards, and goods or services that you purchase for your business helps you to project what amount of free cash you have available to reinvest in continuing to grow your business.  Assessing the profit generated goes beyond revenue and shows whether sales are resulting in a profit or loss. It is also an indicator of what is left after covering all costs of operating so you know what you can pay yourself.

Here are some useful tips on points of attention in managing your businesses accounting and cash flow:

1. Planning: In addition to accounting, any company needs effective, strategic planning based on market, customer, and product research. When the stages are followed correctly, the odds of mistakes are reduced and it is easier to foresee alternative outcomes.

Prepare possibilities for different scenarios and be prepared for emergencies that can destabilize finances.

Know your expenses and keep track of them, preventing delays, and choosing automatic payments whenever possible.

2. Emergency fund: In financial planning, specify an emergency fund. This should be able to cover 6 to 12 months of expenses – explore what works best for your company. In the event of the unforeseen, the business will be able to maintain salaries and other expenses while it forms recovery strategies.

3. Profitable investments: Invest in solutions that will bring your company additional profit. This applies to developing new products and services, as well as coming up with marketing campaigns and financial portfolio investments.

Another important tool is having a cash flow forecast. This is vital for any small business, as it can tell you if you’ll have enough cash to run the business or expand it. It can also show you when more cash is going out of the business than in.

Projecting your cash flow can save you from over spending/over drafting, help you plan for your business’s future, assess future performance, predict future goal accomplishments, and identify cash shortages.

When you properly employ such planning, you’ll know exactly which times of the month you can expect money to be deposited into or withdrawn from your bank account. With this information, you’ll know when you actually have the cash on hand to cover your expenses. For example, even if you’ve invoiced a client for a sizable amount of money, you can’t use that money until you actually have it, and cash flow strategies help you know just when that will happen.

Sometimes you may have a surplus of cash. That money can affect future opportunities, so you don’t want it to sit around. We recommend that you make the surplus work for you. You can do this by making short-term investments and using the money to pay off debts faster. That way, the money will benefit you through generated interest or shorter loan terms. Always consult with a professional accountant before making major financial decisions that could impact the future of your business.

Here are some ways to help manage your business cash flow

1. Don’t wait to send invoices: By sending them out right away it will eliminate the delay for cash received for products or services provided.

2. Monitor where your money is going: Make sure that you’re spending smart and not making unnecessary purchases.

3. Reevaluate your business operations: By reviewing your weekly operations of the business and knowing not only the sales you are making, but where you are spending cash will help you evaluate what is truly important and what waste can be cut.  By cutting unnecessary expenses, you can improve cash flow and cash on hand available for future growth.

This accounting jargon can feel a little daunting if you’re not fluent in managing your business’ accounting aspects. We’re here to help!  Donna founded Check & Balance Business Solutions (CBBS) in 2020 with a vision to provide excellent and accurate accounting services for businesses that have a need for an experienced bookkeeper or corporate controller, as well as for businesses that are looking to better their financial systems in order to improve efficiencies and certainty of data. Accurate financial records are vital to the growth and stability of businesses, and a lack of a skilled person in the accounting role could be causing more harm to your business than you may realize. Accounting maintenance can be quite intimidating, time-consuming, and even confusing at times. By taking that weight off of our client’s shoulders, our goal is to help our clients continue to grow and be profitable and compliant while letting you focus on operating your day-to-day business.

Donna Sovie
Owner & CEO at Check & Balance Business Solutions

I founded Check & Balance Business Solutions, LLC in January 2020 realizing a dream that I set out to reach ten years prior. Almost twelve years in to my corporate accounting career, gaining a tremendous amount of knowledge through hands on learning, I decided to return to school to obtain my Masters Degree in Accounting and set out on my journey to one day have my own accounting business. My vision was to provide excellent and accurate accounting and human resource services for businesses that have a need for an experienced bookkeeper or corporate controller at the part-time level, as well as for businesses that are looking to better their financial systems in order to improve efficiencies and certainty of data. Accurate financial records are vital to the growth and stability of businesses, and a lack of a skilled person in the accounting role could be causing more harm to your business then you may realize. By taking that piece off your shoulders, my goal is to help you continue to grow, be profitable and compliant, while letting you focus on operating your day to day business.

1 Comment

  1. Tracy Westcott

    As a small business owner trying to figure out my budgeting, invoicing, and all things money, this article is so helpful! Thank you for sharing!

    Reply

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