O cash flow is the main tool of gestão financeira of any size. It consists of the registration of financial inflows and outflows (sales, purchases, investments, etc.), for further analysis and planning of the discharge of the bills to pay e Bills to receive Organization.
We will see in this article:
What is Cash Flow?
When to Use Cash Flow?
Types of Cash Flow
The role of financial management in companies
Cash Flow Statement: 5 Steps
Possible Cash Flow Applications
Make Your Cash Flow
O cash flow, known in English as cash flow, is nothing more than the management of what goes in and what comes out (in monetary amounts) from your company in a period.
Also known as cash control, you should include chart of accounts, record of releases, bills to pay, Bills to receive, charts and reports. Throughout the post we will see how to make your cash flow in practice, but before that, let's understand its main concept.
It sounds simple, but think about the scenario that most companies usually face. Most accounts mature on the 5 day of each month, while sales are made throughout the month. There is a clear cash mismatch.
Without planning, it is very common that the company does not have enough cash to employee payroll on 5 day.
Business cash flow is the most important financial management tool. No matter the size or sector, they all need to be clear control of what goes into and out of the box. In addition to what is to win to pay and to receive.
Because it is a crucial instrument of financial management, cash flow must be used daily by companies or even self-employed professionals. After all, only then will you be able to know the flow of money that goes in and out of your company and keep accounts up to date, that is, a healthy business.
The exercise of cash flow consists, as previously accounting for financial transactions. Management can be done in the cash and regulatory regimes. Some companies do this in two ways:
When the cash management is done using the dates of the transactions as inputs and outputs of cash values. The positive point is that the cash flow becomes a faithful view of the bank's cash holdings. The downside is that the reviews may be distorted due to late payment. One company may find that it made a profit in a month in which it was received for several late sales, for example.
When the cash management is done using the transaction dates as the when they are signed. A sale on 6x, for example, enters the accrual regime as soon as it is agreed.
Many companies use cash control on a cash basis and Statement of Income (DRE) to make the control by the regime of competence.
The management itself can be done in various ways (systems, spreadsheets, notebooks). I recommend using a spreadsheet as these are flexible, easy to implement and are able to provide all the necessary analysis.
Operational Cash Flow
O operating cash flow is the record of only the cash flows of the company directly linked to the operation. For example, financial transactions, such as interest and income, and acquisition of fixed assets are excluded.
Free Cash Flow
O free cash flow is, in general terms, the remaining balance in the cash after all payments and accounting deductions. It is heavily used in financial projections and valuation of the company because it signals the potential for dividend payments from a company. Its calculation is simple ... it is the operational cash flow deducted from acquisition of fixed assets, depreciation and amortization.
A gestão financeira is the activity that allows other areas of the company to continue breathing. For starters, all areas need a budget, in other words, know how much they can spend and invest. Secondly, it is necessary that someone materialize and monitor the expenses and investments mentioned.
The financial ends up being a central area, for communicating with all areas. Its importance is so visible in large companies, that often the Chief Financial Officer ends up being the President's natural successor.
In any company, good financial management starts with good cash flow management. It is the most basic way to track financial records and make decisions based on data. From the cash flow, other financial activities can be developed.
The cash flow statement is one of the financial documents used to compose the accounting of a company. Most organizations look at the accounting exercise only as tax compliance. This attitude greatly underestimates the importance of accounting, which ends up being left out.
Accounting is the science that studies the assets movements (assets, rights and obligations) in organizations. It is through this that the main financial reports are generated that will guide the company into the future. Bad accounting makes the company pay more taxes and lose financial and credit opportunities.
A importance of accounting and financial management as a whole, can be portrayed through 5 benefits:
- Meet deadlines for payment and receipt
- Knowledge of financial indicators
- Data-based decision making
- Trusted company history record
- Comply with tax obligations
The first step in making a reliable accounting management is to have your company's cash flow organized and updated.
Step 1 - Chart of Accounts
The purpose of the chart of accounts is to separate incoming and outgoing money into categories. This step is critical for further analysis.
In our spreadsheet, we have available the following categories: Product Expenses, Services Expenses, Non-Operating Expenses, Expenses with RH, Operating Expenses, Marketing Expenses, Taxes and Investments.
However, you can use the accounts that best fit your enterprise. In our same worksheet, they are customizable.
Start categorizing your cash outflows (costs, expenses and investments). To illustrate this step, check out the image below with a portion of the Expense Plan:
Then, separate the money entries into categories. In our spreadsheet, the categories are: Product Revenues, Service Revenues and Non-Operating Revenues. But remember to use the categorization that best suits your company.
Check out the image below to better visualize how the Recipes in the Chart of Accounts are:
A well-made spreadsheet allows you to modify the categories and has the automated result for the rest of the file.
Step 2 - Financial Releases
Now that you have set up your chart of accounts, you can perform the entries of entries and exits (transactions) daily, as shown below:
Financial postings are nothing more than the recording of the largest number of information (without losing the objectivity) of the transactions carried out.
In our spreadsheet cash flow the balance of the postings, which are updated automatically from each new entry or exit, is available in the right corner, allowing you, as the person responsible for the financial, to have an overview of your cash flow.
In the image above, we see the launch of R $ 1.500,00 for the item Marquinhos, which was classified in Expenses with HR, in the Plan of Accounts "Salaries" and has the status of payment because the date of payment has already been inserted. This means that, on the day of payment in question, this expense was incurred and accounted for the cash flow. If you want, you can do this process for any type of present or future release (just do not enter the date to leave the release open and only insert when the move actually occurs).
Step 3 - Review of Releases
After making the launches, the simplest way is to understand and find the final daily balance. To do this, one must calculate the value of the entries subtracted from the value of the outputs and add it to the starting balance.
In our worksheet, in the Summary: Postings item, we already calculate the day's balance automatically, as the information is provided. Here you can see the fluctuations throughout the month.
For example, if at the beginning of the month there are more payments and at the end more receipts, the analysis of these data allows greater financial preparation monthly and, consequently, annual.
In this item we provide a summary of Total Revenue for both the day and the month shown in addition to the Total Expenses for the day and period.
Tip: A good record of the postings that have not yet been paid or received, also known as Accounts Payable and Accounts Receivable, allows the company to have a higher Need for working capital.
Step 4 - Cash Flow Statement
Now that we've gone through the entire fill-in, you need to intensify your bottom line analysis, that is, the consolidated cash flow and different reports that can be drawn from it.
Using our cash flow in excel as an example, first, we will see the Consolidated Results. They show the overall picture, month by month, of the company's cash flow. For a better understanding, see the figure below:
The consolidated control provides the Initial Balance, Revenue, Expenses, Profit / Loss, Accumulated and Profitability for the month.
It is important to note that in this worksheet, in addition to controlling the cash flow, it is also possible to analyze your DRE and control the Accounts Payable and Accounts Receivable. Finally, you can see graphs and do more visual analysis.
5 Step - Graphical Analysis
Finally, it is important that your cash management returns graphical analysis. This type of analysis, more visual, lets you know that everything is okay, or that something is wrong, just beating the eye.
Some recommended charts to extract from your cash flow:
1. General Financial Analysis by Month - inflows, outflows and balance throughout the year
2. Recipes - by type, so you know the most relevant and insignificant entries. Remember when we recommend categorizing the entries? Here, this step is important.
3. Expenses - by type, so that you observe monthly fluctuations and make cuts in the correct accounts.
4. Bills to pay bills to receive - essential for cash flow planning.
and also other graphics like:
5. Cash requirement - opening balance of the period plus the entries subtracted from the exits.
6. Accumulated balance - if done correctly, should match the sum of your cash availabilities (cash register, banks, applications, etc).
As you can see, in our spreadsheet, the graphs are generated automatically based on the information provided in the other tabs, through Dashboards. With them, it is possible to have a view of revenues and expenses separately, as well as analyze if there is a need for cash, if there was profitability and what the Annual DRE was.
In addition, the first chart, from the Financial Analysis, gives us a overview of finances, month by month.
Elaboration of a management plan of accounts
A chart of accounts allows a company to rank its revenues and expenses. The objective is to classify financial launches and then investigate, through cash flow, which lines of revenue (products and services) to expand, and which costs to cut.
Learn more: What is and how to make a managerial account plan?
Elaboration of the DFC: Statement of Cash Flow
The cash flow statement is a simple report that shows the cash receipts and exits and the balances (start and end). It can be daily or monthly.
Learn more: How to make a DFC, Cash Flow Statement?
Reduce company costs
It is through the cash flow that an organization can analyze the evolution of its spending lines by type before making cutting decisions.
Learn more: How to reduce costs with Cash Flow?
Make financial projections
Successful financial projections, that is, with a smaller margin of difference as compared to the realized, depart from the historical. Cash flow is the best friend of a financial projection. From it, we can find out if there is seasonality. In other words, how the company's revenues and expenses behave throughout the year.
Learn more: How to make financial projection in Cash Flow?
Make bank reconciliation
The cash flow, when done right, ends up becoming a bank managerial registry of the company. To do this, the company needs to keep its cash launches updated by bank checking if the balances (bank and DFC) are equivalent.
Learn more: How to do bank reconciliation in Cash Flow?
Control installments and payments
When the company makes a sale or an installment purchase, the financial manager can already provision all the installments by making future postings to the cash flow. In this way, the company will know more or less how much it is expected to enter and exit the cashier in certain periods.
Learn more: How to make installments in Cash Flow?
Manage customers and suppliers
Cash flow can help the company understand who your most profitable and costly customers and suppliers are. For companies working on projects, this vision becomes particularly special. Because they can know their inputs and outputs per customer to make future adjustments to customer accounts.
Learn more: How to manage customers and suppliers in Cash Flow?
Control the budget
Companies that define budgets by account or by area are able to control them and make adjustments through cash flow analysis.
Learn more: How to do budget control with Cash Flow?
Conduct financial advice
When a company starts performing any financial consulting project whatsoever, the first financial document it will ask for, will always be the cash flow report, as it is the heart of financial management.
Learn more: Using Cash Flow in a Financial Consulting
Cash control is essential for efficient and effective financial management. Besides providing peace of mind to the manager, it enables the forecasting of future entries and exits, aiding in decision making.
If you are interested, you can click on the banner below and know our Cash Flow Worksheet in Excel, ideal for any company, of any size or industry, control and organize your financial!
Cash Flow is a crucial topic for any company, no matter their size. It is the first step of a financial management of excellence and, unfortunately, a little subject approached in the superior courses of administration of Brazil.
However, for us in the LIGHT, it is always a huge pleasure to talk about cash flow! It will be an honor to hear your experiences on the subject and to help with your difficulties. Just leave a comment below!