Understanding Cash Flow: How a VCFO Can Help

Understanding Cash Flow: How a VCFO Can Help

When it comes to running a small business, strong cash flow is crucial. Business owners tend to underestimate how important managing cash flow is for their business’s success. Your cash flow helps you monitor and understand your business’s liquidity, flexibility, and financial performance as a whole.

Hiring a virtual CFO will help you make sure your small business is headed in the right direction with positive cash flow, and our McAllen VCFO at Abigail Y. Murray CPA, LLC, can help you improve your cash flow while addressing all of your financing concerns.

What is Cash Flow, Anyway?

Cash flow creates the foundation for financial reporting. Essentially, cash flow is used to describe the cash coming into and going out of your business. Cash flow is judged over time, and businesses generally figure and analyze their cash flow monthly. 

What It Means to Have Positive Cash Flow

In order for your small business to function successfully, it is essential to have the necessary funds in your bank account to buy inventory, handle expenses, and pay your employees. That money should come from previous sales and receivables or the working capital that was invested in your business.

One thing that small businesses tend to struggle with is timing their expenses in relation to their incoming funds. You have to have money to spend money, after all. Long-term financial plans have to be taken into account, but your future income can also affect those plans.

The Difference Between Cash Flow and Profitability

Most new business owners assume being cash flow-positive is the same as being profitable or breaking even. Although these terms are similar, they’re not the same. A VCFO can help your team by distinguishing the difference between all of these terms and how each of them affects the other. For now, we’ll give you a quick explanation. 

Cash flow-positive is when more money goes into your business than goes out. Your profit is what’s leftover once all your expenses are covered. When the year is over, you must evaluate if your business made more money than it spent. If this is the case, you achieved a profit for that fiscal year. You may make a profit despite experiencing moments of negative cash flow several times during the year.

5 Ways to Achieve Positive Cash Flow 

The sooner you learn how to manage your cash flow, the better chance you’ll have of keeping your business thriving. It’s imperative for you to preserve your company’s short-term reputation along with its position for long-term success. 

Here are a few ways to  improve your cash flow and cash flow management: 

  1. Preparing a cash flow forecast — Our skilled VCFO can review forecasts on a daily or weekly basis to make sure your funds are being managed properly. They will also keep track of regular payments like payroll taxes and salaries. This will help your business focus on the times each month where cash, or a lack thereof, may become a problem.
  2. Come to agreements with clear credit terms — Agree on credit terms at the beginning of deals. Encourage customers to talk to you about their payment plans if they come across issues confirming your invoices. Agreeing to these terms allows you to predict the cash receipts in the most accurate way possible.
  3. Invoice on time — The sooner you invoice, the earlier payments arrive. Small businesses typically make payments once or twice a month. If your invoice isn’t made on time, you’ll have to wait until the next payment cycle. This stalls the cash inflow of your business. Email invoices instead of mailing them to help the customer receive their invoice faster.
  4. Make payments simpler for customers — Provide bank account details and multiple online payment methods.
  5. Use technology to manage cash flow — Use cloud accounting solutions to monitor your fluctuating finances. There are some useful cash flow-predicting solutions that sync with your cloud accounting software. This lets the data flow automatically and reduces the likelihood of mistakes.

Outsourced CFO Services for Cash Flow Management

Our VCFO can help your small business meet its financial commitments while managing cash flow efficiently. We are available and committed to helping you raise your profitability and expand your business to its full potential.

Consulting with Abigail Y. Murray CPA, LLC will help you find solutions to all of your financial issues without the cost of a full-time CFO and without sacrificing quality or expertise.

Set up a consultation to discuss cash flow management options for your business today.


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