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The 60 Second Guide to Managing Cash Flow

A common problem for small business owners is the struggle to maintain adequate cash flow levels. Without cash, a business must eventually close its doors. Understanding and managing your company’s cash flow will help you measure the amount of cash on hand and prepare for cash flow shortfalls in the future.

The person who doesn’t know where his next dollar is coming from usually doesn’t know where his last dollar went.
–Source Unknown

In just 60-seconds, we’ll show you how to be vigilant about cash flow.

0:60 Do the Math

Cash inflow is the movement of money into your business, and most likely comes from the sale of goods or services to your customers. Cash outflow is also the movement of money out of your business, and is generally the result of paying expenses. By projecting the inflow and outflow of your business’s cash, you can determine the amount of cash that will be available during a designated period of time.

0:48 Prepare Your Profit and Loss Statement

Your business plan should contain several financial statements. If you’re a start-up business, base your estimates of cash inflow and outflow on the revenues and expenses listed in your profit and loss statements. Complete your profit and loss statement before completing your cash flow statement. Over time, you will be able to base cash inflows and outflows on actual historical data.

0:30 Develop a Cash Flow Statement

A cash flow statement measures cash flow over time. During your first year in business, you should include a month-by-month cash flow statement in your business plan. If you’re seeking a loan, an important feature of your cash flow statement is that it will show the lender exactly how you’re going to afford loan payments.

0:16 Get Help from SCORE

Learning to produce and analyze cash flow is essential for business success. If you need help computing your cash flow, or if you’d like to learn more about financial management, visit a SCORE chapter near you.

Article courtesy of SCORE.
 

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