Cash flow serves as the backbone of a business’s financial health. If you are a Queensland-based small business, hiring an accounting Brisbane professional is crucial because a Brisbane-based tax accountant can help you ensure a steady monetary flow.
A recent Xero survey examined how small and medium-sized companies handle their money during these challenging times. The report showed that many of these businesses feel financial pressure because of the current economic situation.
The survey found that 27 per cent of business owners had to use their savings to keep their businesses going. Additionally, 34 per cent of them couldn’t even pay themselves.
This data further proves the necessity of understanding and maintaining your cash cycle at a reliable rate. This article will explain cash flow and several ways to manage it. It will also share the importance of tax accountants and how an accounting Brisbane professional can help you.
What is Cash Flow?
Cash flow is one of the ways to measure the amount of money that comes in and goes out of your business operations over a specific period. It only focuses on the money coming into your business, excluding credit from suppliers, money owed by debtors, or the money you currently have in the bank.
Cash flows take two forms, positive and negative cash flow. Positive cash flow is when the money that comes into a business is higher than the amount left, and it gives you enough money to pay your bills and operating expenses.
On the other hand, negative cash flow means that the money leaving the company is higher than the amount coming in. When your cash flow is negative, you won’t be able to meet dues and make important payments.
Why Cash Flow Matters in Business
Cash flow is not to be confused with profits. Profit is usually what’s left when a business takes away all its costs from the money it makes.
Confusing cash flow with profit can lead to significant mistakes. A business can make a lot of profit but still struggle with its cash flow, and having good cash flow doesn’t always mean the business is profitable.
Tax accountants always advise business owners to prepare cash flow statements so they can get a better look at the company’s status and implement adjustments as necessary. These are three ways that cash flows impact an enterprise
Cash flows provide an expenditure overview
A cash flow statement reflects everything you spend on, which is sometimes not included in the profit and loss statement. It is crucial to itemise all the expenditures for which you spend money.
For instance, if you took out a business loan and are paying back the principal amount, this will be clearly outlined in a cash flow statement. Seeing it on paper would help you be more aware of your expenses and prepare you for any unexpected occurrences.
It facilitates short-term planning
An accurate cash flow report helps you know exactly how much money you have at hand. This is important because you need precise information to make good plans and decisions. Cautiously managing your cash flow can help you avoid making risky choices for your business.
Your business is doing well, but the cash flow statement could reveal that not much money is coming in during a particular month. It could be because you haven’t sent invoices to your clients. Regardless of the reason, when you keep your cash flow statement updated, you’ll know there are better times to make big purchases.
Determines the right timing for growth
Expanding your business is an exciting step. It brings new opportunities, new team members, and more money. However, it’s essential to be cautious. Growing quickly and in the wrong way can lead to problems.
You will need inventory, rent space, hire people, and get equipment even before you start making money from the expansion. You’ll encounter difficulties if you need more money to support your growth. By managing your cash flow wisely, you can determine the right time for expansion.
Recognising the importance of cash flow in business is essential for maintaining financial stability, making informed decisions, and successfully manoeuvering the path to growth and prosperity.
Effective Strategies for Handling Cash Flow
Managing cash flow is critical to ensuring any business’s financial stability and success. Effective cash flow management involves keeping track of money coming in and going out and making strategic decisions to maintain a healthy balance between income and expenses.
Whether you’re a small startup or a well-established corporation, these strategies will empower you to take control of your finances.
Plan for a positive cash flow
Consider how it might affect your financial situation when deciding on specific goals or what to buy. For instance, running an advertising campaign will make you spend more money (which can decrease your cash), but it might bring in more sales (which can increase your money again). You might need a plan to handle a short-term lack of cash to enjoy the long-term advantages.
Control your credit
Late payments can be a negative factor for small businesses. Business owners can take essential steps to prevent issues with customers not paying on time. It’s a good idea for any business to have as few customers owing money as possible, and having transparent systems and processes in place can help you manage your money and control your finances better.
Try to reduce outgoing costs
Effective cash flow management involves minimizing your outgoing expenses. You can achieve this by seeking opportunities to save money through streamlined business practices and reduced operational costs.
For instance, consider adopting energy-efficient products or scheduling certain business activities during off-peak electricity usage times to lower energy expenses. Identify areas where wastage can be reduced or production efficiency improved.
Benefits of hiring an Accounting Brisbane professional
Partnering with an accounting Brisbane professional can provide valuable insights into managing your cash flow effectively. These experts understand the local business landscape and can help you deal with financial challenges while ensuring continued growth for your enterprise.
They make cash flow organisation more convenient
Every business has to change and try new things to keep making money. Sometimes, these changes can be risky and might impact your cash flow, and it’s difficult to predict what will happen in the future.
Hiring a tax accountant is a good idea if you’re thinking about making big moves like releasing a new item, joining a new market, or buying another business. They can explain well how these changes will impact your cash flow and whether your business can grow.
They can guide you in the right direction
An experienced tax accountant knows how to estimate how much money your business will make. They consider things like what’s happening in your industry and the overall economy in your area and the whole country.
This helps you see where your business is going, what could impact your ability to attract and keep customers, and what improvements you can make to increase your incoming cash and control the outgoing amount.
They will highlight ways to save money
Even though you need to pay a salary to a staff accountant or fees for external accounting help, they will ultimately help you save a lot of money over time.
An accounting Brisbane professional for small businesses can find chances to save money, highlight areas where you’re spending too much or not using your money wisely, and give you smart advice on efficiently managing things like inventory and payroll in the long run.
Unlike profits, cash flow offers a comprehensive view of an enterprise’s financial activities, shedding light on expenses often overlooked in profit and loss statements. It empowers short-term planning, enabling businesses to strategically navigate economic challenges and seize opportunities. Moreover, it guides the timing of expansion, ensuring growth occurs at the right pace and financially sustainably.
In the ever-evolving business landscape, where change and uncertainty are constants, harnessing the power of cash flow management, coupled with expert financial advice, is the key to financial stability and sustained growth. Remember, your cash flow is your business’s lifeline, and nurturing it will lead you to financial success.
The ability to unlock cash flow insights with the help of accounting Brisbane professionals can make all the difference between financial struggle and prosperity. It is an investment in financial stability, informed decision-making, and the sustained growth of your business. If you’re a small business in Queensland, consider enlisting the support of a tax accountant to ensure a steady and prosperous cash flow for your enterprise.