Leverage business operations with dedicated expertise and tech solutions.
Facilitate your business needs with crafted solutions.
Information. Insights. Details.
Small business owners face a multitude of challenges as they struggle to develop their business from infancy to a stabilized operating entity. One of the most critical areas to manage from the financial and operational perspective is cash flow. Following are several strategies that business owners can apply to assist with cash flow management.
Almost all business owners understand the saying “Cash is King”, but many remain unaware of the cash sources and uses within their business. Although many business owners view net income as a cash benchmark, net income provides only a partial picture.
Profit and Loss Statement
The profit and loss statement (“P&L”) provides business owners with an indication of the company’s economic performance. However, unless the books are kept strictly on a cash basis, the reported net income very rarely equals the increase or decrease in cash holdings. (In cash basis accounting, almost all transactions are reflected in the P&L.) Instead, many companies elect to use accrual basis accounting where expenses are matched with sales, regardless of whether cash has been paid out or has been received. The lesson here is that net income does not equal cash.
Prior to receiving any financing, a business typically needs to submit a business plan which provides a road map on how that company will achieve and sustain profitability. The plan identifies sufficient sales volume levels and related expenses. Continuous comparison and adjustment of actual operational revenue and expenses, between the P&L and the business plan, is an effective method of managing cash resources provided by net income.
The balance sheet lists assets owned by the company, liabilities due to third party creditors, and the portion of the assets remaining for the company’s owners. Frequently, the balance sheet is not prepared in conjunction with the P&L, or it is overlooked in favor of the P&L. Unfortunately, control over the balance sheet is a major factor in cash management, so overlooking it can be detrimental.
As unlikely as it seems, a profitable company can become insolvent and result in bankruptcy protection. Cash usage not reported within the P&L, such as significant increases in inventory and receivables, quickly can reduce a company’s liquidity. Following are strategies for managing the balance sheet.
Analytix Solutions has a team of professionals experienced in cash flow planning and management for small to mid-sized companies. For more information on how we may be able to assist your business, please visit us at www.analytixaccounting.com or email us at firstname.lastname@example.org.
Third-Party Reconciliations for Restaurant Accounting
What does the Increasing Role of AI mean for CPA Firms?
Accounting Trends for the Second Half of 2023
Analytix Solutions Set to Ignite Innovation at Sage Transfor...
Analytix is attending an upcoming New England Practice Manag...
Analytix Solutions at PASBA Fall Management Conference 2023
Trends Influencing How Small to Mid-Sized Business Accounting Departments Operate.