The Importance of Cash Flow in Financial Management

As a business owner, you know the importance of cash flow but it’s not the only thing you have to manage. Your focus is constantly being pulled to other areas of the company that need your attention. You might feel like you are already stretched too thin and the last thing you want to do every week or month is sit down and track the cash flow in financial management. If you’re reviewing your cash flow while tired and overworked, one small misstep can cost your business money and even its ability to stay in operation. You can’t risk missing or misinterpreting cash flow data.

Cash flow in financial management is essential to budgeting your operations, financing, and investing activities. Tracking, analyzing, and reporting the business’s cash flow entails forecasting the amount of money that is coming in and going out. Cash is king and without it, a business cannot scale. Many businesses are turning to outsourced financial teams, like Clarisent, to work alongside you and act as your financial steward.

Analyzing Cash Flow

The analysis of cash flow in financial management provides a vital window into the company’s fiscal health. Having positive cash flow (more money coming in than going out) is just as important as profitability. It’s cash after all that pays the bills and fuels growth. If well positioned, cash flow wise, a business can sustain periods of negative cash flow. How long you can last before stuttering is dependent on your business’s health and its ability to generate a cash surplus. Owners, shareholders, and lenders all examine an organization’s cash flow to determine stability and long-term potential. Generating a surplus of cash is always the goal.

Successful business owners regularly forecast the amount of money available now and in the future. Forecasting requires an intimate knowledge of business patterns. The goal is to have enough cash on hand just when you need it. Sometimes that might mean liquidating investments, speeding up invoice collections, taking more time to pay bills, or tapping a line of credit. If the cash flow in financial management analysis reveals a persistent negative cash flow, immediate action is necessary to avoid financial disaster. If cash flow remains positive, then options for scaling are more numerous.

Conducting regular cash flow analysis also reveals whether sales will generate enough cash or if cash flow will need to be supplemented by a line of credit or other debt financing. With it, you can begin to predict the state of your business and identify potential issues before they hit. Remember, it’s possible for a business to be profitable, but be cash poor.

Improper management of cash flow can lead to the following problems:

• Inability to make payroll
• Late payments
• Damaged credit score
• Not scaling
• Unsuccessful cash flow surplus accumulation

At Clarisent, we set up a standard cash flow statement allowing you to calculate diverse types of cash flow across the spectrum to gain greater insights. We look for free cash flow (excluding non-cash expenses) and interest payments to better determine operating cash flow in your working capital.

We also educate you on the difference between levered and unlevered free cash flow and how to use this information to forecast the state of your business. Tracking and reviewing your company's cash flow helps with financial planning and lets you prepare not only for future quarters but years ahead for a potential downturn in sales or a shift in economic conditions.

We focus on keeping the money flowing by balancing your inflows with the company’s outflows. Our team also helps you collect money faster and ensures that your payments reach the right people and creditors.

Not having your fingertips on your cash flow management could be one of the many reasons your business is keeping you up at night.

Your business is telling you where it’s at this very moment.  Do you speak its language?

Every decision you make, every step you take in your business produces a result. They can be good ones, bad ones, and even neutral ones. Every single result shows up in your business as a number. Numbers are the language of business. It takes real experience and knowing how to speak this language to interpret what they mean. That’s what we do at Clarisent.

With over two decades of speaking numbers for businesses with $1-8 million dollars in revenue, often with complex accounting needs, our passionate strategy financial services team takes a compassionate front-view / rear-view strategic approach to financial stewardship and forecasting, and reaching financial goals. We provide affordable, outsourced bookkeeping, accounting, controller, and fractional CFO services for small and mid-sized businesses.

The most successful financial strategies for a business comes from a team that offers reliable support and peace of mind. We pride ourselves on being flexible and solving problems unconventionally. We are creative and strategic. Not often found with strategic financial services. Our focus is on the goals of our clients, not just the bottom line. We are about the lives that the numbers serve.

To us, success is not solely financial. It’s personal. It’s setting, tracking, and achieving life goals as well, Better relationships. Better health. Happy staff. Giving to causes that make the world a better place to live. Feeling fulfilled emotionally, mentally, and physically. All of these riches are possible as the CEO of your own business. We don’t just say they are possible. We are certain they can be achieved.

Clarisent Certainty Pyramid™

EXECUTIVE SUPPORT & STRATEGY

Strategic Planning
Revenue Growth
Profitable Decision Making
Stakeholder Management

Annual Strategic Financial Plan
KPI Development
Fundraising
Acquisition/Exit Planning

EXECUTIVE SUPPORT & STRATEGY

Strategic Planning

Revenue Growth

Profitable Decision Making

Stakeholder Management

Annual Strategic Financial Plan

Budgeting

KPI Development

Fundraising

Acquisition/Exit or M&A

MANAGEMENT & REPORTING

Management &  Monitoring

Accurate Reporting

Deep Analysis

Internal Controls

KPI Management

Improvements & Recommendations

Cash Flow Management & Projection

Profitable Decision Making

CPA Support

Business System Check-up

MANAGEMENT & REPORTING

Management &  Monitoring

Accurate Reporting

Deep Analysis

Internal Controls

KPI Management

Improvements & Recommendations

Cash Flow Management & Projection

Profitable Decision Making

CPA Support

Business System Check-up

DAILY OPERATIONS

DAILY OPERATIONS

Data Entry

Expense Management

Vendor Management

Data Entry

Expense Management

Vendor Management

Invoicing

Payroll

Invoicing

Payroll

DAILY OPERATIONS

Data Entry

Expense Management

Vendor Management

Invoicing

Payroll

To accomplish this certainty and clarity yourself, you would need to be your own:
BookKeeper

A ground-level day-to-day manager, categorizing all business transactions, handling bills and invoices, reconciling bank accounts, and preparing key monthly reports. Taking the daily, weekly, and monthly financial pulse of your business.

accountant

A highly focused specialist, compiling, analyzing, verifying, and preparing financial records. Creating documents to ensure lawful, efficient, and compliant business practices and making sure you are ready for taxes.

controller

A high-level strategic manager overseeing all financial tasks and reporting procedures. Supervises and guides your bookkeeper and accountant.

CFO

A highly experienced, specifically skilled leader responsible for tracking cash flow, financial planning, analyzing your business’s financial strengths and weaknesses, and proposing strategic directions.

Every one of these roles offers a unique and critical vantage point that supports you and your ability to make decisions to grow your business. How can you expect to take on each of these critical roles and still be able to lead from your strength? Which is your big vision. Honestly, you can’t.

It’s no wonder you are:

  • Making bad decisions due to unusable information
  • Frustrated with your bookkeeper
  • Worried about making payroll
  • Making wrong turns
  • Experiencing stagnant growth, or worse, going backward
  • Unable to seize opportunities when they arise
  • Losing money despite it coming in
  • Losing excitement for your business
  • Sacrificing your physical and emotional well-being
  • Losing your faith and confidence
  • Losing sleep at night

Why our clients sleep well at night

These are the 7 crucial financial factors Clarisent always has it’s eye on to ensure that you maximize your financial decisions:

Profitability Dynamics

If you are unaware of your inventory, manpower and operating expense details, you can miss important profit dynamics. With Clarisent looking deeper at your cost structures, you can consolidate vendors, reduce product costs and reduce shipping and labor costs with an eye to increasing your margins. This factor can result in thousands of dollars in potential savings or operational efficiency that goes directly to your bottomline.

Vendor Oversight

Vendor Oversight

You can trust that with Clarisent, money flows to keep your business humming. We work to balance your inflows with your outflows so you don’t face temporary deficits. We help you collect money faster and ensure that payments are made to the right people at the right time.

Proactive Financial Reporting

Don’t spend valuable time each month forecasting sales and income projections, thumbing through tax forms or creating expense spreadsheets. Clarisent can save you time and money through proper preparation, organization and month summaries of all key performance indicators, including:

Sales
Expense
Profitability
Marketing Performance
Financial Account
Cash Flow

On-Demand Insights

A detailed chart of accounts and accurate reporting maximizes your productivity, gives insight for better planning and builds trust with shareholders, investors and creditors. With proper procedures, you can rely on the financial data that we provide. Clarisent’s full service clients enjoy our near real time ClearView Dashboard™ complete with insights and recommendations that will help you make smarter business decisions. On-demand fractional CFO support calls are included as well.

Profit Expansion

It’s not enough to know what you did in the past. It’s also important to look forward based on the past and see what’s coming in the future. Successful businesses use profit and cost centers to monitor their activities and manage cash flow. Clarisent clients use our proven financial systems to illuminate what they should do next.

Key Performance Indicators

Key Performance Indicators (KPI) measure key business drivers and the correct focus is placed on performance, strategic planning and operations. Clarisent provides you with a personalized ClearView Dashboard™ so you can make better financial decisions.

Financial Strategy & Support

A business is only as successful as the team they have in place. Clarisent provides navigation, strategic planning and results-driven advice to their clients at the fraction of the cost you may pay to hire a CFO.

Back to where you are right now. Big vision, flying blind, and not sleeping because you are unclear where your business is financially today.

Wouldn’t it be better if you:

  • Have laser clear and highly usable data from your business so that you can make better decisions every time?
  • Have trackable financials that clearly aligned with your goals and vision?
  • Have a precise snapshot of your cash flow at your fingertips?
  • Can predict your business’ future despite uncertain times?
  • Have an open door to capital and financial growth and protection tools so that you can take advantage of opportunities when they arise?

All of this is yours today for free.

Happy CEOs

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