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Why You Need a Cash Flow Analysis

A successful small business is one that has a good handle on its cash flow to maximise profit in the long term. Where small businesses usually go wrong is in maintaining up-to-date financial records which can end up overlooking cash flow problems. Here the team at M.A.S Partners has some professional accountancy tips for small businesses to make sure you improve your bottom line.

The Importance of a Cash Flow Analysis
A cash flow analysis provides an opportunity to see the different cash inflows for an in-depth look at the capital and liquidity of the business, to ensure you’re keeping with planned growth. This includes a report of how much cash is available, operating costs, an inventory analysis and other areas that may be hindering your bottom line. Keeping control of your cash inflows and outflows is extremely important and one that requires a professional perspective as it's easy to overstate cash inflows. To find the best small business accounting, ask about cash flow forecasting to understand your financial position.

New Business Opportunities
Understanding how much money is available to reinvest into the business can result in growth and identifying new opportunities. A good example is an updated marketing strategy that could open new markets for the business. How you invest your money can determine how the business will grow and it all stems from a cash flow analysis. A good small business accounting practice will help you in forecasting your cash flows while identifying other opportunities, such as reducing inventory, to help in your financial position.

Accurate Projections
A cash flow analysis isn’t only beneficial in identifying new opportunities, but also in future cash flow projections to aid your planning. A cash flow analysis projects over the year to estimate how much cash will be produced, from inside and outside the business, and how much cash will be needed to sustain operating costs. These estimates are essential to budgeting and goal setting and can identify cash flow problems if your projections aren’t met.

Understanding Cash Flows
An often misconception is that cash flow is linked to profitability, the remaining revenue, when it relates to the cash flowing in and out of the business in different ways such as liquid assets coming into the business and operating expenses going out. It’s essential to understand where your cash flows are going and for how long to assess your financial performance. Your cash flow can be separated into your operating cash flow, investing cash flow and financing cash flow which can be analysed to maintain business growth. If this sounds complicated, small business accounting professionals can provide cash-flow reports to help you understand the different cash flows in your business.

Our team at M.A.S Partners specialises in small business accountancy and has been Sydney’s premier accountancy firm for almost 60 years. Taking the burden out of accounting, we know your time is valuable and can tailor a business strategy to amplify your business. Want to know more? Get in touch with our professional team here or call (02) 9211 5000.

 
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