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Cash Flow Management Tips and How to Run it

To judge whether the business that is being run is successful or not, most people will judge from the profit or profit generated. In fact, profit is not a sufficiently accurate indicator to assess the financial condition of a business. One thing that is important is seeing how cash flow management can work in the company.

Cash flow is the lifeblood of a business. He can determine the success and continuity of a business. A study from the U.S Bank showed that 82% of businesses were found to be bankrupt due to poor cash flow management.

This means that the company must be able to manage its cash flow to be able to operate smoothly and avoid business bankruptcy in the future. Without cash, you will never make a profit or profit.

Many businesses start out profitable and then end up in bankruptcy because the amount of cash coming in is not proportional to the amount of cash out. Companies that do not have good cash flow management may not be able to make profitable investments.

Then, what is cash flow management?

Definition of Cash Flow Management is a process in monitoring, analyzing, and processing cash flow from a business or activity or job. Cash flow management can be done for those who earn and do.

Cash in is obtained from monthly income, other business income other than basic salary, investment income, and others. Cash out, namely all routine expenses, such as food, tuition fees, and daily necessities. The basic principle of cash flow management, namely try to make the expenses you make smaller than the income.

In more detail, we can conclude that the activities that take place within the company consist of two cash flows at once, namely:

Cash Inflow, is all forms of cash that go into the company and become income that will increase the company's assets. This includes several forms, including money from the sale of products, disbursed receivables, bank loans, interest earned on investments, and a number of additional outside capital (investors).

Cash Outflow, is all cash issued from the company which is intended to support various activities within the company itself. Cash flow consists of various forms, such as company spending money to meet the raw materials needed, funds to pay employee salaries, funds to pay a number of incoming bills, funds to buy various equipment (assets) that are new for the company, debt interest costs. installments, tax fees, and others. Cash flow management will be needed in various company activities and handling of the financial problems mentioned above. This is intended to balance cash flow with the outflow within the company.

Cash is what forms cash flow. Basically there are two types of cash flows, namely:

Positive Cash Flow: This occurs when the cash funneled from sales activities, accounts receivable, and other sources of income exceeds the amount of cash out. The cash that comes out is usually used for various expenses, such as repayment of trade payables, monthly expenses, salaries, and others.

Negative Cash Flow: This occurs when your cash outflow is greater than your cash inflow. And this means trouble for your business. However, there are steps your business can take to improve the situation. Your business can still generate or accumulate more cash while maintaining or cutting business expenses.

In a business, the expected target is to be able to achieve positive cash flow. However, achieving a Positive Cash Flow condition is not easy. You have to really put in effort to achieve it. Analysis and management of business cash flow needs to be done regularly so that you can more effectively control the inflow and outflow of cash.

The first thing that can be done, is to record all expenses and conduct an analysis of these expenses, which is the largest expense this month. In addition, without us knowing it, irregular expenses such as watching movies or eating and hanging out outside can also drain your cash.

Therefore, it's time to manage cash flow, by running the following cash flow management tips:

  1. Budgeting, create a monthly budget and discipline in spending money. Recognize primary expenses or are routine, secondary (investment) and tertiary (entertainment).
  2. Separate a savings / investment account and an expense account, this aims to determine the limit of spending that you can do without using the funds that you should have invested.
  3. Change Cash Flow, previously Income -> Expenses -> Savings / Investments, to Income -> Savings / Investments -> Expenses.
  4. Disciplinary, the last one is discipline in carrying out the 3 (three) things above.