If you have a small or medium-sized business, you have probably asked yourself more than once what cash flow is and what it is for. This calculation is used to control all the economic expenses and income of your business to give you a model about the general financial status of the company.

Cash flow is an indicator that companies use to measure their financial health. This is a calculation that compares all the money that comes in with all the money that is spent, with the aim of having a clear idea about the available liquidity.

A positive cash flow means that the money you received during a certain time was greater than your expenses. A negative cash flow, on the other hand, means that expenses were greater than money received, which is a problem that you must solve.

Although there is no reason to worry, since the preparation of a cash flow will determine some important points that you should consider to take action. For example, it will tell you if the company is able to buy with cash or needs to resort to a loan; if the debts can be paid before the due date or if it is necessary to request refinancing; If it is possible to invest the excess money, among other things.

Types of cash flow

There are three types of cash flows that you should take into account: operational, investment and financing.

Operational cash flow

This calculation depends on the income obtained from the sales of your company's products or services and payments to suppliers. It is the most important, since it is directly related to the financial status of the business.

Investment cash flow

This cash flow is for companies that incur in the purchase of real estate or a financial investment.

Financing cash flow

It includes financial activities (such as requesting a loan) that can generate debt, negatively influencing the liquidity of a company.

The formula to calculate cash flow is very easy. First, the net profit must be established; That is, the final income of your business in a certain period. Then, it is necessary to add the accounting expenses that have not involved a cash outflow (accounts payable and amortization) and the income that has not yet come in (accounts receivable). In summary, the calculation is: net profits + amortizations + forecasts.

And how is a cash flow prepared? The first thing you should do, logically, is to have all the information about your company's income and expenses. Then, you can make a cash flow using any specialized software for the task such as: Sheetgo, SME Toolkit and Quickbooks. Another option is to hire an accountant or a specialist who is in charge of keeping all the numbers for your business.

A negative cash flow is usually the most common cause of bankruptcy of small and medium-sized businesses. However, this should not happen if the problem is detected in time and certain actions are taken to recover the business. We share some tips to optimize your cash flow.

Modify your payment system

Offer discounts to your clients if they pay you in advance. Likewise, you can apply financial penalties (through the addition of interest, for example) when they are late in their payments.

Know your company's inventory

This point is very important, especially for companies that offer products. If you know exactly which items are selling the most, you can avoid shortages and a stock out. Furthermore, if you know which are your least sold products, you will avoid making excessive purchases that later generate overstock and, consequently, an economic loss.

Evaluate different suppliers

Look for new suppliers that offer you greater benefits. However, do not forget to maintain good business relationships with your usual suppliers, since the trust they have in each other will be substantial to renegotiate new payment dates.

Request a loan

If you are confident that, in the future, you will be able to assume the financing costs, you can apply for a loan. Keep in mind that, for a loan to be granted, the credit score (FICO Score) of the business owner is recommended to be between 700 and 850 points.

Para saber si tu empresa tiene capacidad financiera, haz un análisis superficial. Un manejo responsable del cash flow te evitará problemas financieros y establecerá tus posibilidades reales, asegurando que puedas enfrentarte al pago de deudas, proveedores y servicios. Además, te permitirá llevar las cuentas de tus ingresos y gastos, lo cual te ayudará a tomar decisiones empresariales muy importantes.