Cash Flow is a financial control where all the company’s cash inflows and outflows are recorded for a specified time. The importance of cash flow is given in your attentive observation. Thus, the administrator is able to predict surpluses or shortages of money and then can make better decisions about spending and investments, better managing the business.
Usually supplied by accounting in spreadsheet format, the cash flow allows a correct adjustment of the capacity for payments and receipts. This indicates the days when there is more or less cash in hand. Information can help:
- In negotiating supplier pay days
- In negotiation of receipt by customers
- When deciding when to invest in machinery
- Deciding when to move inventory
These are example financial activities of the business.
How to make a cash flow?
The control is done by someone who is aware of all operations that involve cash inflows and outflows from the company, through an Excel table. It is recommended that monitoring is done daily.
The administrator will first fill in the opening balance, that is, what is in the cash register when the flow begins.
Then you fill in the entries, which represent everything that went into cash through sales, what was paid by check, card, etc.
It is also necessary to include if there are investments of any kind yielding or any other receipts. All of these values added up will result in the total entry.
Then, outflows are recorded: taxes, payment of suppliers, pro-labore, salaries, infrastructure expenses, marketing, commissions, purchase of equipment, etc. These form the total output.
The total input minus the total output value represents the company’s operating balance. In other words, it is a comparison between what goes in and what goes out to check that there is no harmful imbalance to the business in these two factors.
The initial balance and the operating balance are subtracted to obtain the final cash balance, which represents how much the company actually has available money. This amount is the opening cash flow balance for the following period.
Cash flow types
· Projected Cash Flow
It is the control of what the company has to receive or to spend in the future. It follows the same scheme as the daily monitoring of the cashier, but it includes bills that still have to be paid, such as personnel, infrastructure expenses and all the amounts already provided. Likewise the recipes. Fixed customers, income, etc.
Projected Cash Flow helps entrepreneurs to anticipate future needs. As well as organizing dates of receipts and payments, so that the cashier does not fluctuate a lot and is not discovered unnecessarily.
· Free Cash Flow
Free Cash Flow shows the amount available in cash, considering investment and working capital needs. Therefore, it is not all capital that is free, but that which can be used without jeopardizing future operations.
The calculation includes expenses such as amortization, which is not an outflow of cash, but represents a reduction in the amount made available.
· Operating Cash Flow
It is what the company generates money in a given period from its operations. It represents how much you bill with customers, without accounting for investments or working capital needs.
· Direct Cash Flow
In the Direct Cash Flow method, gross receipts and payments from operating activities are considered for the financial statement. That is, without any discount.
· Indirect Cash Flow
The indirect method of cash flow statement considers the values from the adjusted net profit of the resources coming from the operation. This after discounting factors such as depreciation and amortization.
· Discounted Cash Flow
Discounted Cash Flow, or FDC, as it is most used in accounting, is a way of calculating a company’s value through its cash flow.
It is used when a company is sold, merged, in search of investors, as well as to evaluate the return time of the invested capital.
To assess the FDC, there must be a projection of the company’s cash flow in the coming periods and then calculate its entire value for the present, using a discount rate.