Cash inflow, cash outflow: managing your business cash flow

Cash inflow, cash outflow - accountants call it cash flow and it's crucial to the smooth and profitable operation of your business. Having a thorough understanding of where your income originates and ends up helps identify opportunities for improving cash flow, boosting profitability and heading off any nasty financial surprises.

Cash inflow 

Businesses sell products and services to generate income. The catch-all phrase for it is 'sales'. It doesn't matter how you make a sale, the end result is a transfer of wealth from someone else to your business.

The most common sources of cash for your company are:

• Cash sales: what people pay for your goods and services. 
• Collections from accounts: collecting money owed by companies who bought your goods and services on invoice.
• Loans or other cash injections: usually from banks or individuals, or organisations buying equity in your business.
• Interest and investment returns: Money received by your business on cash in the bank or investments, such as rental returns on property.
• Other revenue: any other money received. For example, affiliated businesses may be paying you to advertise their products on your transport fleet.

Cash outflow 

In order to produce and sell goods and services, your business uses raw materials and labour, which must be paid for. In other words, you have to spend money to make money.

Here's where the bulk of your cash outflows go: 

• Stock purchases
• Wages and payroll expenses
• Tax such as PAYGW, fringe benefits, luxury car tax
• Office and operating supplies
• Advertising
• Transport expenses
• Accounting and legal services
• Maintenance of your premises and assets
• Rent on your premises and warehouse
• Communications such as phone, internet and website
• Interest on loans for cars, buildings and stock
• Insurance
• Bad debts

Positive cash flow

Now you know where your money comes from and where it goes, how do you improve your business cash flow to make it work harder for you?

There are some simple rules to follow to improve your cash inflow and outflow:

• Invoice early and offer customers incentives for early payment
• Follow up debtors with friendly reminders and avoid dealing with organisations who consistently pay late
• Make payment easy for your debtors, such as offering payment over the internet
• Consolidate loans to save on interest

Boost your cash flow, boost your business

Don't wait until you're in a tight financial spot before looking at your business cash inflow and cash outflow.

Speak to an accountant today to find out how better managing your cash flow can deliver significant financial benefits to your business.