Your business’s cash flow, simply put, is the net amount of cash coming in and going out of your business. Eventually, you want your business to generate positive cash flow, which just means that you’re making more money than you’re losing. But how do you do that?
There are many different ways to improve your company’s cash flow, but one of the easiest is to get a good accounting app. The right accounting software can help you understand and increase your cash flow with cash flow statements, cash flow projections, automatic invoicing, and expense tracking.
Calculating Cash Flow
To calculate your cash flow, you subtract the money your business is spending from the money your business is earning.
Cash Flow = Money coming in – Money going out
This equation may sound simple enough, but it gets more complicated when you have to record, track, and categorize all of your business’s income and expenditures and then understand what that number means for your business at any given time. That’s where the cash flow statement comes into play.
The Importance of Your Business’s Cash Flow Statement
Your company’s cash flow statement is the basis for understanding your business’s liquidity, ability to meet your financial obligations, and overall financial health. It helps you, the business owner, plan the best next moves for your organization.
For example, if your cash flow statement indicates a positive cash flow, you know you can afford to pay off debt, pay investors, invest in more capital, or take on a little risk knowing you have extra cash to fall back on. If your cash flow is negative, you know you need to cut expenses, increase sales, or go after unpaid invoices.
In addition to helping you make good decisions as a business owner, your business’s cash flow statement is used by investors and creditors alike to gauge whether investing in or lending to your company is a good idea.
How to Generate Cash Flow Statements with Accounting Software
Accounting software makes it incredibly easy to come up with a cash flow statement for your business. Linking your accounts to the software means you get an accurate, up-to-date record of your income and expenses, which is half the battle when it comes to understanding your business’s cash flow.
From there, a lot of accounting software will actually prepare cash flow statements for you. Many come with a cash flow tool that can generate weekly or monthly cash flow statements so you’re always in-the-know. You can even use software to generate cash flow projections that give you a sense of what your cash flow will look like 1 month, 6 months, or even 1 year from now.
How to Boost Your Cash Flow with Accounting Software
Apart from helping you understand your cash flow, accounting software can also help you improve your cash flow in the following ways.
Cash Flow Projections Help You Prepare
Having an accurate sense of your business’s future is critical to making decisions in the present. Cash flow projection tools help you understand whether you should be reinvesting or cutting back in your business. They also help you prepare for influxes and shortages of cash that are on the horizon so they don’t blind-side you.
Invoicing Tools Help You Increase Cash Inflows
Most business owners know what it’s like to chase down invoices and worry about coming up short on bills because of customers who pay late. Many accounting software programs come with invoicing tools that allow you to save time by sending out invoices directly through the app. And on top of that, you can set up a recurring schedule of invoices for regular customers.
Once the invoice is sent off to the customer, though, it’s out of your hands—right? Not necessarily. The best accounting software will also allow customers to pay their invoices directly through the app using a credit card, which should speed up payments for you. You’ll also be able to send out payment reminders and clearly see your paid, unpaid, and late invoices all in one place, so you don’t have to waste time and energy trying to remember who owes you what.
Expense Tracking Helps You Cut Costs
By giving you a clear sense of what your expenses are, the expense tracker tool can help your business cut costs where needed. Most accounting software programs will import your expenses and categorize them for you, so you’ll be able to see if you’re spending more money than you budgeted for in a certain area.
Keeping track of your expenses also allows you to make sure you have enough money for your bills. This knowledge will help you avoid unnecessary costs like late payment fees and interest fees.
Now that you understand why cash flow is important to your business and how accounting software can improve it, it’s time to choose an accounting app and leverage it to grow your business.