Why You Must Keep a Record of Cash Flow in Your Small Business

Updated: Sep 5, 2021

Without recording the cash inflow & outflow in your business, it will be next to impossible to evaluate the financial condition or to find out if you are making any profit in your business.

This article will help you understand the best practices to follow when you're doing bookkeeping of cash flow in your business. We will also talk about how technology & certain mobile apps can easily help you in recording cashflow of your business on the go & with real ease.

What is cash flow?

Cash Flow is simply the money that’s flowing in and out of your business. On a regular business day, you make payments to your vendors for purchases made, payments to staff for some work or payment to customers as well. So, the amount of money which is going out from your business to any other business or person is Cash Out Flow or Cash Flow out of your business.

Similarly, the payments / money being received from customers, vendors, etc is Cash Flow into your business.

Why is keeping a track of Cash Flow in your business important?

  1. Make Better Plan & Decisions: You will have a clear understanding of the exact amount of money left with you at any point of time. You can use these funds as & when needed cautiously.

  2. Understand where your money is being spent: Sometimes it’s important in business to know where you are spending your money & why. Depending upon your financial condition, you might be able to identify the areas where you can cut down the costs or increase the spends.

  3. Better Collection Practices: Giving credit to your customers helps you to build your business & customer base. But that also means you need to manage the collection process very efficiently.

What are the best practices for efficient bookkeeping of cash flow?

  • Prepare a basic record keeping system comprising of below:

  1. A basic journal or a mobile app to record transactions in your business

  2. Credit Transactions or Accounts receivable records

  3. Debit Transactions or Accounts payable records

  4. Payroll records

  5. Petty Cash records

  6. Inventory Records

Note: You can develop a system most suitable for your business needs and maintain it on a regular basis. This practice will help you easily generate financial statements when filing tax returns.

  • Set Up Calendar for Accounts Receivables: Track due dates for payments to be received from your customer or vendors. This will form a huge portion of money coming into your business. It will make your collection 3 to 4 times faster.

  • Schedule your business expenses: Time your purchases instead of buying ad-hoc. This will help you track your expenses & plan your budgets more effectively

  • Track Inventory to Sales regularly: Track high selling items to know when to order more & also track low selling items to avoid ordering more. Analyze your sales to see where your inventory money is flowing.

  • Use Cash Flow Projections: Make cash flow projections for a certain date adding the cash in hand & due payments, subtract planned expenditure from it. Now match actual cash flow against it. Figure out reasons if there is any difference. Will improve your cash flow management techniques significantly.

So, for efficient cash flow management you can use accounting softwares or mobile apps too such as PesaBook for bookkeeping of your business on the go. PesaBook is a free & easy to use mobile app that lets you track all type of credit & debit transactions happening in your business. Using this app you can also set reminders for payment collection on a specified date. You can also send reminders to your borrowers for these due collections.

An effective & diligent cash flow management is critical for success of any small or large businesses.

Download PesaBook on Google Playstore Here: https://play.google.com/store/apps/details?id=com.pesabooktechnologies.pesabook

Thank you for reading this piece! We hope it helps you succeed in your business!

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