Cash flow is one of the most important aspects to consider when starting a business. How will you pay your employees? What about taxes? One way to ensure cash flow is never an issue for start-ups is by outsourcing accounting.
Working with an outsourced accountant can help relieve some of the stress that comes with cash management and financial planning, allowing entrepreneurs more time to focus on what they do best: running their business! This post discusses cash flow in detail and provides 3 reasons why it’s so important, as well as how outsourcing helps you keep cash flowing freely.
Reason #1 – Paying employees
Cash flow is especially important for start-up companies. Not only do cash flow issues have the potential to shut down a business, but cash flow can also affect other aspects of your company such as productivity and morale if you find yourself unable to pay employees on time or taxes because cash isn’t available.
Reason #2 – Unexpected expenses
Keeping cash flow healthy can also mean having money available for unexpected expenses or emergencies, so it is important to know what cash on hand will cover before outsourcing becomes necessary.
Reason #3 – Managing projects
Cash flow can be difficult to forecast especially for cash outlay for projects. Since cash may be tight in the beginning, you’ll want to make sure that your cash flows are properly monitored and expenses are kept as low as possible (i.e., outsourcing).
Types of cash flow
Cash flow from operations is cash generated by the primary business activity. The cash flow statement tracks cash flows in and out of your company over a specific period of time—a month, quarter or year. It provides you with an up-to-date picture of cash available to debt holders, investors and other lenders (including suppliers).
Cash flow from financing shows cash paid and cash received from creditors (such as bank loans) over a specific period of time, such as the past 12 months. Or it can include interests expense from loans. Cash inflow from financing can also include cash received from issuing debt or issuance from stock proceeds.
It can also show cash received through selling assets that were purchased in previous months (such as a car). Cash inflow from investing may also come from interest income on money market.
Cash flow from investing shows cash paid out for capital expenditures or long-term investments, such as equipment or office space, or plant and equipment. It includes cash outflow to acquire new company assets like real estate, machinery, or vehicles. Cash inflow from investing includes disposal of such plant or equipment purchased in the past.
Cash flow statement
A cash flow statement provides a detailed report of cash transactions over a period of time. It is used to help companies understand their cash flows, and make decisions about where they should invest the money they have earned from sales or debt repayments.
Use an outsource accounting company like us to do your cash flow for you! We can provide you timely monthly cash flow statements, to understand where your cash is spent.
As a startup company, cash flow can be especially challenging. You need cash to pay for your day-to-day expenses – salaries, rent, etc., and you also have opportunities to invest in new products or services.