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The importance of monitoring cash flow

There are many reasons to keep good accounts, but one of the biggest is the fact that accurate, up to date accounts allow you to monitor cash flow.

Without good accounts, it is impossible to monitor cash flow effectively.

Numerous studies show that problems in this area are a major cause of bankruptcy, so every business should monitor its cash flow closely. Doing so will allow you to see points in the year where your business is going to be cash poor, and manage production, investment, and borrowing to take your business safely through those tight financial times.

Not having a proper understanding of cash flow can easily lead to the following negative situations:

Not being able to pay staff on time

When this happens, you end up with demoralised staff. Some will feel so insecure, they will leave. This could mean that you lose people with valuable experience and skills. Inevitably, some customers orders will not be fulfilled on time, so you are likely to lose customers as well as personnel.

Not being able to pay bills on time

Naturally, if you do not pay bills on time, you can end up with services such as power being cut off. Not paying suppliers can mean that your firm is not able to secure enough materials to complete future orders.

Negative impact on your credit worthiness

Failing to pay bills on time has a serious negative impact on your ability to borrow money when you need to. It also makes borrowing more expensive.

A firm that only looks at its cash flow once a year only has a relatively slim chance of staying afloat for five years or more. This means it is important to look at this aspect of your business on a regular basis.

How often is up to you. Some firms do it weekly, others monthly or quarterly. Whenever you look at cash flow, your accounts must be up to date; if they are not, you will not get an accurate picture.

Posted by Louise
November 6, 2014

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