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Cash Flow Management

Analysis & Budget

Cash flow is essentially the movement of money into and out of a business. It's the cycle of cash inflows and cash outflows that determine every business' solvency.

Cash flow analysis is the study of the cycle of the clients' cash inflows and outflows, with the purpose of maintaining an adequate cash flow for their business. Cash flow problems can be identified and cash can be increased by performing analysis to certain business’ elements, such as accounts receivable / payable and inventory components.

Cash flow management is the process of monitoring, analyzing, and adjusting cash flows. It involves taking a comprehensive view of the entire value chain, from purchasing to receipt of payment, and optimizing capital efficiency by process improvement.

For small businesses, the most important aspect of cash flow management is avoiding extended cash shortages, caused by having too great a gap between cash inflows and outflows.

  • The allocation of income to cover expected costs throughout the year will help ensure that all credit obligations will be met.
  • It is equally important not only to track current cash flows, but also to project at the start of the examined period all expected income and expenditures.
  • Once expected income and expenses are recorded, comparisons can be made between projected and annual cash flows to help point out any discrepancies.

By creating a cash flow budget:

  • We can project the clients’ sources and applications of funds for the upcoming time periods.
  • We will identify any cash deficit periods in advance and the client will be able to take corrective actions now to alleviate the deficit.
    • This may involve shifting the timing of certain transactions (postpone payments or collect claims earlier).
    • By budgeting we also determine when money will be borrowed. If borrowing is involved, it will also determine the amount of cash that needs to be borrowed.