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Finances are vital to the success of every business, but for many visionary or creative entrepreneurs, managing cash flow is a draining activity. With so many transactions coming in and out and so many upcoming, it can be hard to track where you stand on a weekly, monthly, or even annual basis.

If there is one thing we know as Chartered Professional Accountants in Edmonton, it is that cash flow tells a story. In most cases, that story includes something to do with a lack of oversight in cash flow. In other words, business owners are so busy working on the business, they aren’t aware of how much they’re spending versus how much is flowing into the business.

At Schwan & Associates CPA, we know the incredible impact a cash flow assessment can have on your business. This simple step will begin to paint the picture of what is going on in your business’ wallet.


What Does Cash Flow Refer to?

Cash flow simply refers to the real or virtual movement of money coming into and going out of a business. For example, your cash flow could be increased with a payment from a client, while it could be decreased by investment in a new piece of equipment. While it sounds simple enough explained this way, most businesses have multiple streams of money flowing into and out of their business, and usually not on a predictable schedule. Add in the fact that many small businesses in Edmonton are growing, and cash flow becomes even more difficult to manage.


Why a Cash Flow Assessment is Important

Analyzing the flow of money in your business can help you diagnose problems that you might not have realized were there. It can also highlight opportunities to preserve or increase resources that you might have overlooked in the everyday hustle. For example, unnecessary spending on individual products might be costing you thousands; meanwhile, a bulk product at bulk pricing could be available. All it requires is oversight and organization in your cash flow planning.


Filling Up the Reservoir

One analogy that can be used to understand how cash flow works is to imagine you want to fill up a water reservoir. You’d first need to determine the water source, such as rivers and streams, that will feed into the reservoir. You’d then need to determine the volume of water flowing into the reservoir to know how long it will take to fill it. Next, you’d probably build a dam to stop the water from flowing until the reservoir fills up, then once it is full to the desired level, you’d be able to release the extra water. You’d also want to analyze and assess the area to make sure water wasn’t leaking in areas you weren’t controlling.

When it comes to your finances, your cash is like the water. Understanding your cash flow is important to your business because if you don’t know where your money is coming from and how frequently, you won’t be able to accurately project budgets or plan ahead for investments and general spending.


How to Assess Your Cash Flow

You should complete a cash flow assessment every time you consider drafting a budget. You’ll have a much clearer picture about where you can spend your money once you know exactly where your revenue is coming from, what your expenditures are, and where you can avoid unnecessary cash flow loss. Here are three basic steps to follow to assess your cash flow:

Map Out Your Income

Just like the reservoir analogy, in order to fill up your bank account, you need to know exactly where your revenue streams are coming from and how reliable they are. Once you assess this, you’ll be able to make the necessary changes to ensure you’re not spending more than you’re making. You’ll also be able to improve your processes so that you get paid accurately and on time. Start by asking yourself the following questions:

  • How do you get paid? Are there fees being incurred for processing payments?
  • How often do you get paid? Are people paying in installments? Are they paying the whole bill at once or using deposits or payment plans?
  • How often are you paid late? How can you prevent this?

Once you have the answers to these questions, you can begin strategizing ways to improve your income and revenue streams.

Map Out Your Expenses

Next, you’ll want to map out your monthly expenses and determine exactly where your cash is flowing to. Knowing where you need to spend your money in order to operate will help you determine if you’re on track or need to make adjustments. Start by asking yourself these questions:

  • How large are your monthly expenses? How do you pay your largest expenses?
  • Who are your providers? Have you sourced other quotes or pricing? Are you getting services and products worth the investment?
  • How often do you pay your bills past the due date? Are they recurring expenses or one-time expenses?


Paint A Picture of the Future

Once you know where your revenue streams are coming from and going to, you can determine how much money you can invest in your business for future growth. You can start this process by asking yourself the following questions:

  • How fast is your business growing? What will your upcoming cash flow look like?
  • How do you fund your business growth? What do you need to invest in so that you can accommodate the growth?
  • How much money is in savings and investments? Is it easily accessible? Is there enough to cover several months of usual operating expenses in case of an emergency?

Once you’ve answered these questions, you’ll have a good idea of your overall cash flow process. You’ll be able to diagnose your business based on your answers to determine what needs improvement. If you continuously accept overdue payments on invoices, you might want to charge a fee to encourage clients to pay on time. If you pay your bills late regularly, you might want to rethink your process and set calendar reminders or hire an assistant to help you manage your time. If you’re unsure how to answer these questions, you can use our free “Cash Flow Scorecard” to get a clear idea of where your business stands.


Assess Your Cash Flow in Three Easy Steps with an Edmonton CPA

Once you know you get your cash flow scorecard you’ll be able to make informed decisions about your finances. Without a cash flow assessment, you might be shocked when you don’t meet your financial goals.

If you’re ready to take your finances to the next level, our CPAs are here for all of your cash flow management questions.

Jeff Schwan

Jeff established Schwan & Associates CPA to bring unique “cloud-based” accounting services to small and medium-sized Edmonton businesses. Inspired by the quality time spent with his family, Jeff’s goal is to put more time back in the hands of the busy entrepreneurs who strengthen Edmonton’s business community. With 10+ years of experience in diverse management roles, Jeff has acquired a strong set of leadership and mentoring skills. He is, and always has been, an educator at heart. He knows the value of spreading knowledge, investing in people, and continually learning.

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