Business owners need to pay attention to a variety of metrics, measurements and other pieces of information to stay on top of operations and understand the direction in which their company is headed. This need to maintain consistent oversight can't be ignored. Without a good handle on everything from the attitudes and motivation level of your employees to your financial health, it's easy to lose control and face a wide range of operational problems.
When it comes to cash flow and profitability in particular, a cash flow template can provide critical insight and keep your business on the path toward growth, stability and many years of continued operations. Let's look at what goes into a cash flow template and why they're so useful.
Cash flow is a simple measurement that reveals some critical information about your company's operations: how money flows into and out of your business. Identifying where money comes from as income and where it goes as expenses, debt payments and similar obligations is a foundational element of responsible business management and ownership. With a cash flow template in hand, you can quickly identify not just overall income and spending, but the specific value and cost of individual concerns.
It's important to note that, as the U.S. Small Business Administration pointed out, organizations spend cash and not profit. There are many situations where profit may be recorded before the payment itself makes its way into your business's bank account. A contract that has an overall value but calls for scheduled payments over time is just one example. While your business can count on all the money eventually flowing in, you also can't spend what you don't have. That's why tracking cash flow is so important: It allows for an accurate, current snapshot of your company's financial position.
A cash flow template allows you to organize your various income streams and expenses into a clear, easy-to-understand snapshot that provides both historical context and a view of your current situation. Perhaps the most important step to take - beyond deciding if you want to build your own spreadsheet or use a variety of available templates, such as this free example compatible with QuickBooks and starting to input information - is identifying all of your sources of income and debt.
On the incoming cash side, some basic areas of profit can be identified easily. Income from contracted work, regardless of how it's provided, can be added to the template as it flows into your coffers. However, you may also need to consider other sources of revenue, such as a working capital loan. While you'll eventually need to pay back the amount loaned, the money is readily available and intended for you to use to prop up your operations.
Having more expenses than sources of income is common, as everything from office supplies and electricity bills to leases on heavy equipment and payroll fall under this category. Take the time to identify all your expenses, as doing so once means you only have to make small adjustments going forward.
Maintaining your cash flow template to ensure accuracy on a month-to-month basis is imperative to your business. Strategic business decisions can be difficult to make if the information contained within the template is is incomplete and/or incorrect.
With your updated and accurate cash flow template, you can identify a variety of issues that may have otherwise remained undiscovered. Opportunities for cost-cutting may arise, especially if you notice a specific bill is exceptionally high and you have the opportunity to switch to a different vendor. You can also isolate work performed in recent weeks or months that, while providing income for your business, may not have been worth the associated investment of time, labor and materials. A job that offers only meager returns and required a substantial outlay of resources is one you'll likely want to avoid in the future.
Having a comprehensive understanding of cash flow can enable you to take better advantage of the equipment leasing and financing options available to you. With a strong understanding of what will fit into your budget on a monthly basis and the impact of a new yet manageable expense, you can more confidently seek out the opportunity to acquire new equipment that will help your business move forward. To learn more about leasing and financing through Cat Financial, get in touch with us today.