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As a small business, you might wonder whether you need a cash flow analysis, or you might not know what one is at all. If the latter is true, this is to be expected! Unless you’ve performed a cash flow analysis before, you’re not to know what they are or how they work.

In this article, you’ll learn what a cash flow analysis is, why they’re important and how to perform one.

Guide to Cash Flow

What is a cash flow analysis?

Cash flow simply refers to how much money comes into your business, and how much goes back out again, over a specific timeframe. A cash flow analysis digs into your cash flow statement and measures your cash flow, enabling you to:

  • compare with benchmarks and previous cash flow statements
  • understand where your money is going and where it is coming from
  • create a plan or strategy for improving your cash flow.

1. Why do small businesses need to perform a cash flow analysis? 

Having a cash flow statement in place is a great start – in doing so, you’re one step ahead of many other small businesses, and having that data in one place will be so useful in the long term.

But not being able to analyse or understand your cash flow statement means you’re unable to action any changes that will benefit your cash flow in the future. A cash flow analysis is more than just keeping track of your cash flow – it’s knowing what to do next.

For small businesses, a cash flow analysis provides opportunities for improvement and ultimately business growth.

2. How frequently should small businesses run an analysis?

In an ideal world, small businesses would perform a cash flow analysis once a month, or more, to maintain visibility and understanding of the cash available in the business.

3. How to perform a cash flow analysis

Firstly, you need to ensure you’ve got an accurate cash flow statement. Once you have and you’ve got all your data in one place, you’ll be ready to perform a cash flow analysis. Where should you start and what should you be looking for?

Take a good look at money that is owed to your company, as well as money that you yourself owe elsewhere. If there is a shortfall, look at bridging that gap by way of overdraft, loans or invoice financing. If there is a surplus, look at ways to invest the money, either back into the business or into savings or bonds.

Further, look for trends, patterns and dig into the reasonings behind any changes. This will give you a greater understanding of your cash flow and will feed into your cash flow forecast in future.

Outsource your cash flow management

Performing a cash flow analysis is no easy task, particularly if you’ve never performed one at all and you’re not sure what to look for, or how to interpret the data.

At The Finance People UK, our experts have years of cash flow management under their belts. We offer SMEs and start-ups the opportunity to outsource cash flow management, to ensure they are on the right path for a promising and healthy cash flow for years to come.

From providing snapshots of cash inflows and outflows, to longer-term planning to support your future, our experts will do everything in their power to ensure your business is in a good place.

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