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What is and how to do Cash Flow?
In this article we will talk about:
- Essential Control Types of Cash Flow
- Example of customer and supplier control
- Complete financial management worksheet with customer and supplier control
One of the biggest problems that every financial area faces is not using 20% of its analytics potential. The truth is that there are many entrepreneurs and managers who are content to look only at the profit or complete financial management worksheet provides for them.
It turns out that a spreadsheet like these can provide much more scope for essential controls like:
- Sorting by chart of accounts
- Payment status
- Control of cost centers
- Bank analysis
- Payment method analysis
- Control of customers and suppliers
Now, if you want to have good reports for good analysis, no matter what control you want to do, you must separate the fill fields from these items from the journal entry tab of your cash flow. In the case of our worksheet below, you can see the area of insertion of outstanding customers and suppliers:
Since this control and completion of the postings is only the first step, it pays to see an example of what insights you can take with a good analysis of customers and suppliers.
To begin with, filling in the entries for income and expenses in a complete financial management worksheet you will arrive at your most important and general report which is the cash flow. This is what he looks like:
In a simple way, you'll get a view of the following items for all months of the year:
- Opening balance
- Profit or Loss
- Accumulated value
So far, it's the 20% that almost every manager has and visualizes, but as I said, this cash flow overview does not show you a lot of details that may be critical to your decision making.
To see an example of customers and suppliers, ideally, the financial management tool you use already searches your entry and exit log data and creates reports specific to them. Let's start by doing a review for a new cash flow report taking just the revenues and expenses related to that customer:
You will see that you have revenues (sales made to that customer) and expenses (direct costs related to the rendering of the service sold or the manufacture of the products sold to that customer). With that in mind, the first question you need to answer is whether this customer is worth it or not.
In our example, we have a profit of R $ 2.000.000 at the end of the year, which is a good indicator. Now, look at another case where the customer is very profitable:
Assuming we had 4 clients, 3 with a stream similar to that of our 1 client and the 2 client. This would indicate a profit of $ 12.000.000 at the end of the year, but with 50% of that profit concentrated on the 2 client.
This can show a dependency on a customer and that if we lose that customer we will have big problems with our cash flow. Knowing this, it is worth looking for alternatives to be sure that this loss will not occur. Some possibilities are to diversify the client portfolio or establish long-term contracts.
To close, we still have the case of clients that generate more problems and losses than revenues. See the example below:
In the case of our 3 client, the damage may have occurred due to production problems, failure to provide services, unplanned expenses or even legal proceedings against the company. Regardless, what you need to ask yourself is whether it's worth continuing with that customer or if you need to charge him dearly.
As I have shown in the examples above, in my opinion, the most important things for you to discover while doing a specific financial analysis of clients are the following:
- Which customers are the most important?
- Is it possible to do something to make these customers more satisfied?
- Of the most important, is there any dependence?
- Is it possible to diversify the client portfolio or make long-term contracts with this client?
- Which customers hurt your business?
- Is it possible to reverse the situation by improving the direct costs related to this project or service?
- Of those who generate losses, does one have strategic importance to the point of maintaining the relationship?
- Is the change in revenues or expenses improving or worsening throughout the year?
In the same way that you analyze customers, it pays to look at suppliers. The only difference here is that suppliers are usually only responsible for expenses (unless you also make sales for them). In any case, see an example of a specific cash flow for funders:
The analysis you need to do is very similar to that performed for customers:
- Are you very dependent on any supplier?
- Are there others you can look for?
- Are your spending on suppliers increasing or decreasing throughout the year?
- Is there a possibility / need to bargain prices or payment deadlines?
With these answers in hand, now it is only to make decisions based on the data that you have been able to analyze about your customers and suppliers.
If you liked this type of analysis, you may need a tool to get those insights that are so important to any business. I recommend the complete financial management worksheet, which in addition to doing analysis of customers and suppliers also has reports of cost centers, banking analysis, form of payment, classification of the chart of accounts and payment stakes (accounts payable or receivable).