Managing Cash Flow for Small Business

Cash flow management refers to tracking the cash position of the business on a regular note so that the decision makers have the correct financial picture to take informed business decisions.

Cash flow management for a small business involves tracking the actual cash receipts and payments and it also include mapping the receivables / payables with the expected dates of realizations etc (to the extent possible to map) so that the expected cash flow position is visible to the business heads to take realistic business decisions.

An accounting cash flow position is different from an economic cash flow position as the accounting cash flow does not take into account the expected realisation and payments to be done, thus restricting its use to accounting reporting purposes. Generally, it is always beneficial to perform the cash flow analysis to include references to the expected flow money (in and out) which are certain so that the business’s fund flow position speaks more clearly of the surplus (requirements), as the case may be.

Having an up-to-date cash flow position could assist a small business enterprise plan for the cash requirements of the near future and hence, decisions in regard to deployment of the surplus cash or expected fund requirements could be taken with more authenticity and on time.

To ensure that the cash flow analysis displays an accurate financial position, it is imperative to ensure that the accounting is accurate and bank reconciliations are up-to-date.

An accurate historical cash flow statement could also be used as a base by a small and medium sized business to project the cash flow requirements of next 3-6 months (or more). The cash flow position could not only help in determining the operation cash flow position levels but also the investment and financial cash flow positions could be understood and analysed for effective decision making.

It is always recommended that cash flow positions are interpreted by the decision makers with clear vision of the possible fund inflow and outflow so that any alarming situation could be sensed on time and a corrective measure is executed before it is too late.