Importance of Cashflow Management for Enterprises
Cash flow refers to the inflow and outflow of cash daily. For a business to remain healthy and competitive, it needs to have net positive cashflow i.e. the inflow of the funds should be greater than the outflow..
According to a study done by the Bureau of Labour Statistics, 82% of businesses fail due to improper management of the cash flow at their businesses. This highlights that, apart from managing revenues and profit, cash flow is a key factor for an enterprise to grow and become successful.
Improper management of cashflow can also lead to obstacles in your day-to-day operations. Payments to vendors and suppliers on a regular basis maybe delayed due to insufficient funds at right time. This can again be the reason for disturbances in your operations.
Reasons to Track & Manage Your Cashflow
Better Decision Making:
By having the most accurate cashflow statements, the decisions can be made based on the data. If the cashflow statements do not show accurate figures, the plan and the decision can fail and may lead up to major issues for your business.
Your sales data is highlighting the strong position of the business. Whereas, cashflow statement is showing less inflow than outflow. In such scenarios businesses might end up in not keeping the word or may impact on your purchase decisions.
Track Spending Patterns:
It is important to track where the cash is going from the business. As an enterprise, you will be able to manage cash more effectively and track something that is not on your income statement. It is also important to understand why the money is going and where it is going.
By tracking the cash effectively, you will get an idea about necessary and unnecessary day-to-day costs that your business has. Your business then will have a better understanding of the cash that is coming in and going out ?
Scaling Up Your Business:
Enterprises usually have forecasts and outlooks to grow and scale up their business either in new geographies or with new offerings. But if the scaling up of business is done without much liquidity at hand, it can lead to major problems down the line.
Inventory, rents, salaries, assets – all this requires funds. If there are not enough funds reflected in your statements, either you have to borrow the funds or you have to postpone your scaling of operations.
Optimize Working Capital Allocation:
Tracking cashflow statements will help you track and optimize avoidable and un-avoidable costs. At times, there are expenses that may not be as necessary as you may think and can be avoided for a time being. Therefore, by tracking your expenses, you can prioritize cash allocation and ensure the business operates smoothly on daily basis.
Building Trust with Partners:
If you have cashflow and liquidity issues, you may fail to pay your vendors on time. Delays in payment to suppliers or vendors mean that there is potential harm to your business’s reputation and goodwill.
Building trust with suppliers and vendors takes a lot of time. But to break that trust, it barely takes anything. Setup payment schedules and have cash reserves in case of any unforeseen circumstances to ensure that your trusted partners are paid on time and business runs as usual.
Sources of Cashflow
Cashflow from Operation:
Cashflow from operations deals with the main activities of the business. This includes buying and selling merchandise, provisioning different services and so on.
Cashflow from Investment:
Cashflow for investment is quite important as it details down purchase and sale of capital assets. Capital assets are those assets that have more than one year of usefulness as per the balance sheet of the company.
Cash inflows for investment can be sale of plant and equipment, liquidation of long term investments whereas, Cash outflows from investment will be purchase of plants and equipment and long term investments.
Cashflow from Finances:
In case your business has raised money through debt financing, cashflow finances also become important to track. Debt financing usually incurs an expense in terms of interest, and this can impact the net cashflow of the enterprise.
Cashflows from finance could be debt issuance, common stock, preferred stock and other securities. Whereas, outflows can be retirement of debts, payment of cash dividend.
Intellify’s Financial Analytics Solution for Better Cashflow Management
Intellify has years of expertise in providing solutions that can let your enterprise tell the story through data. Intellify’s Financial Data Analytics will allow your enterprise to tell the story about its cashflow health and status in an interactive and engaging way.
Our dashboards become the single source of truth as it pulls data from various sources. Apart from this, Intellify’s Financial Analytics solution can implement 13+ dashboards with more than 80 KPIs. It can track revenue, profit, assets and liabilities of your business along with the cashflow.
If you wish to know more about our Financial Analytics solution, connect with our experts here.