Cash flow is your small business’s lifeblood. Your business must generate and keep sufficient cash to meet expenses and expand the business. Cash management strategies are important to ensure your business thrives and succeeds. Cash flow determines your company’s financial health. Limited cash flow can force you to pass on profitable business ventures or prevent you from operating adequately. You can avoid these problems by hiring a CPA in Louisville KY to help manage your cash flow. Keep reading to know how an accountant can help handle your cash flow and business.
Understanding Cash Flow Budgeting
To improve the cash flow of your business, start by developing a cash flow budget. This budget will give you an overview of your company’s cash inflows and outflows during a certain period. A cash budget offers vital information on whether your business has enough funds to sustain day-to-day operations every month, quarter, or year. This can help you meet the daily needs of your business without taking on debt.
How Cash Budget Works
Cash inflows cover cash from sales, asset sales, and collected accounts receivables. Cash outflows cover expenses like disbursement for debt repayment, purchases, manufacturing costs, and taxes. The difference between your cash inflows and outflows is the net cash flow, which represents the money your business generates or loses.
Cash budgets can be short-term or long-term. Short-term budgets concentrate on the cash that your business needs for a few weeks or months. You can make these budgets by taking into account operating expenses such as payroll, variable expenses, utility bills, and supplier payments.
Meanwhile, long-term cash budgets are the expected cash flow that your business needs for the next year or several years. They cover information on tax payments, capital expenditure projects, and long-term investments. Strategic planning is important to create long-term budgets, and an experienced accountant should be involved in the process.
How Proactive Tax Planning Can Improve Cash Flow
Every business owner should plan their taxes proactively. A big tax can hinder your cash flow management approach. This is the reason you should take cash flow budgeting, management, and budgeting seriously. Proactive tax planning can improve cash flow and the position of the company. These financial planning strategies can help identify short-term and long-term goals and develop plans to meet such goals.
A real-time cash flow budget is an important business tool. A CPA can explain when cash is available, set financial goals, prepare for taxes, and measure the performance of your business. Below are steps to create a tax plan to help you handle healthy cash flow:
- Understand your tax obligations. A lot of business owners slip u on some kinds of taxes. The complex tax code and the constantly changing statutes can be hard to stay on top of. An accountant can walk you through your tax obligations, which include local taxes, state taxes, and federal taxes.
- Have a monthly tax money reserve. Failing to plan for taxes can lead to cash flow issues when it’s time to pay taxes. You may not have the money needed during tax season. To stay on track, let an accountant determine the amount of money that can be set aside without ruining your daily operations.
- Revise your projections as needed. Tax projections can help you make long-term cash budgets. These budgets will ensure that estimated taxes remain in line with anticipated cash inflows. Even if you have reserved funds for taxes, you may still owe the tax department more than you thought, which can affect your business cash flows and operations. Allowing a CPA to handle your company’s tax planning and accounting needs, you will have time to focus on running and growing your business.
