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Three things to know about managing your cash flow

As a small business owner, have you ever taken a closer look at your cash flow situation?

If not, it’s something you might want to consider doing on a regular basis. For starters, understanding your cash flow can give you the information you need to make smart choices for your business.

That’s because taking closer looks at your finances, such as accounts payable and accounts receivable, inventory and credit, can give you a clear picture of the health of your business. This takes a bit of foresight and planning, meaning you’ll need a good bookkeeping system and accurate records.

Here are three reasons why you should do a regular cash flow analysis:

• It offers needed clarity: Having an accurate picture of cash flow lets you know where money is coming from, where it’s going and how much is available at any given time. This type of bookkeeping gives businesses the power to meet the demands of today and plan tomorrow.
• It’s highly accurate and trusted: Cash flow analysis is the best way to get a fair, reliable picture of your business’s value. Unlike trying to estimate the value of property — both material and intellectual — a real-time picture of cash on hand is a dependable, trusted assessment of worth.
• It can pinpoint potential problems: Knowing what’s coming in and what’s going out helps you to see any troubles on the horizon. For instance, if your revenue is lower than it should be, a regular analysis will help you make changes. Likewise, if you have expenses that are higher, you’re able to change course and save money.

Remember, businesses don’t fail because they don’t show a profit, they fail because they run out of cash. That’s why cash flow analysis is so important, but it’s also just one piece of a bigger puzzle. If you find any weaknesses or concerns will looking at your bookkeeping, it’s important to be ready to take the appropriate action to address them.

At PADGETT BUSINESS SERVICES®, our network of trusted accountants, tax professionals and small business advisors know how important it is for you to have an accurate, trusted picture of your finances. Don’t hesitate to reach out to one of our offices if we can be of assistance.