888-731-4034 info@gsquaredcfo.com

short term cash flow is what matters Philadelphia, New York City, Washington DCIn the business world, you’ve probably heard the term “cash flow” thrown around quite a bit. It’s one of the most common benchmarks for understanding the state of your company and evaluating where you could streamline your operations.

Whether you’re a small business owner or Microsoft founder Bill Gates, analyzing your cash flow is an imperative exercise. First, you should learn exactly what cash flow is, how short-term cash flow impacts your operations, and why it’s an important gauge of your company’s success.

Cash Flow: A Beginner’s Guide to Understanding Profits

At the most basic level, cash flow is the relationship between money coming into your company and money flowing out of it. Think of an entrepreneurial business in its most basic form: a child’s lemonade stand. Cash flow is the balance between money coming in (cups of lemonade sold) versus the entrepreneur’s expenses (the cost of lemons, sugar, cups, etc.) Everything left over is profit.

What Comes In
Revenue is generated from a number of sources. It’s more than just the sales you make to keep your doors open. Some common examples of cash coming into your business include:

  • Product sales
  • Service payments
  • Loan proceeds
  • Outside investment in a company
  • Sale of assets

What Goes Out
After all of that revenue flows into your company, where does it go?

  • Production costs
  • Worker salaries
  • Operational costs (rent, utilities, office supplies, etc.)
  • Principal debt service
  • Purchase of assets

Understanding the cash you have on hand at the beginning of an accounting period in comparison to the funds left over after all the bills are paid is key to increasing your company’s profitability levels.

Short-Term Cash Flow & How It Impacts Your Business

Now that you have the basics of cash flow, look at your finances on a more granular level: short-term cash flow. This is the amount of money coming in and being spent on a daily, weekly or monthly basis. It’s the day-to-day finances that keep your business running.

Taking a magnifying glass to your short-term cash flow has a number of benefits. By analyzing cash flow on this level, you’ll be able to identify what regular expenses are costing too much money. By trimming this fat, you’ll have more control over your assets. You’ll have more insight into future planning. Once you analyze your cash flow, you’re empowered to create a strategy to ultimately strengthen your business.

You Don’t Have to Figure It Out Alone

While it’s important to have a working knowledge of your company’s finances, you likely didn’t go into business to monitor your short-term cash flow. Successful entrepreneurs know how to run their business, in part, because they’re passionate about the products or services they offer. If you connect with that statement, it might be ideal for you to hand the financial management reins over to an expert financial partner.

Turning to a financial partner or outsourced CFO takes the concerns of monitoring your long-term and short-term cash flow off your plate. Look for a financial partner with the experience to assess your current cash flow status and optimize it for a streamlined, profitable business model. Doing so will allow you to concentrate on what you do best, and that’s running your business.

G-Squared can help you monitor your short-term cash flow. It is what matters most. We serve CEOs and entrepreneurs in Philadelphia, New York City and Washington D.C.