What is cashflow statement and why is it important

Cashflow is the movement of money in and out of a business. It is the net amount of cash that a business receives and pays out over a period of time, such as a month or a year.  Positive cash flow means that a business is bringing in more cash than it is paying out, while negative cash flow means that it is paying out more cash than it is bringing in.

Positive cash flow is important because it allows a business to meet its financial obligations, pay its bills on time, and invest in growth. It also helps a business to have a cushion of cash on hand to weather financial storms or unexpected expenses that may arise.

Negative cash flow can be a major problem for a business, especially for those which may not have savings, lines of credit or access to loans.  

Cashflow management, therefore, is of absolute importance for small and medium-sized enterprises (SME).  It involves managing the inflow and outflow of cash in a business to ensure that there is enough liquidity to meet operational expenses and other financial obligations.  Proper cashflow management can help SMEs avoid financial problems, such as defaulting on loans, and can also help them take advantage of opportunities, such as expanding their business.

Some tips for to help SME manage its cashflow effectively:

1. Forecasting: SME can use financial forecasting to predict future cash inflows and outflows and identify potential cashflow shortages or surpluses. This can help them plan for the future and make informed financial decisions.

2. Invoice management: SME can improve their cashflow by managing their invoicing and accounts receivable processes efficiently. This may include setting clear payment terms, following up on overdue invoices, and using tools like invoicing software to streamline the process.

3. Credit management: SME can also manage their cashflow by carefully managing their credit and debt. This may include negotiating favorable payment terms with suppliers, using short-term financing to bridge cashflow gaps, and avoiding taking on too much debt.

4. Expense management: SME can improve their cashflow by closely monitoring and managing their expenses. This may include identifying unnecessary expenses and cutting them, negotiating better terms with suppliers, and using cost-saving measures like energy-efficient equipment.

Cashflow management is crucial for the success and sustainability of SME.  By forecasting, managing invoices, credit, and expenses, SME can ensure that they have the liquidity they need to meet their financial obligations and take advantage of opportunities as they arise.