Cash Flow Management - Why is it Important for Sri Lankan Businesses

Cash flow is the movement of money moving in and out of your business within a specified span of time. It may be measured on a weekly, month, quarterly or annually. Nevertheless, we all can agree that your business is happy if you have a positive cash flow. Things could go for the worse, if otherwise.

In order to create a positive ash flow, you need to find ways to reduce overheads, generate more cash and set up protocols to close your cash receivables more punctually.

You do not achieve a positive cash flow by luck. It can only take place with a well-defined cash management protocol. If done right, a business should be able to manage activities that product cash more efficiently. It is of great value for any business to maintain an optimal cash level.

A business should always focus on speeding up the cash in flow process where possible. The popular 2 approaches involve issuing prompt customer invoices and timely follow up of settlements of accounts receivable. You can also delay your cash outflows by negotiating with suppliers to delay their payments.

To really understand the timing of a businesses’ cash movement, using a forecasting system is very effective. A forecast helps identify a clearer picture of the top cash sources along with their expected settlement periods. Knowing this can help determine when to hold on to cash without spending and when to spend without fear.

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A financial report contains important documents such as a profit and loss statement, balance sheet and a cash flow statement. The cash forecast is an overview of the 3 cash flow activities that appear in the cash flow statement, which are namely:

Operating Activities – This is the cash flow as a direct result from sales revenue.
Investing Activities – This is a result from the non-operating activities such as investments on fixed assets, bank deposits, stock etc…
Financing Activities – This is a result from lending activities such as loans, debt financing etc…

The approach is to ensure more money is flowing in than is flowing out – this is the most comfortable situation for any business. The excess cash helps fill in the gaps where necessary in order to pursue the need to expand or invest in other businesses for additional non-operating sources of cash inflows.

Watch this video to get a better explanation of how to analyse your cash flow

Watch this video to learn how to handle cash flow

Once you are ready, click here to take a spin on the fast growing accounting software in Sri Lanka. Use a professional system to get a grip on your cash flow TODAY!