How to start managing your finances: managing your cash flow

To put things in order? To coordinate? To know what is happening and what direction the company is taking?

That’s exactly what happens when you manage your cash flow : you understand each process, the value and the path that the money takes within your business .

And why? Because when you manage your business finances, you can understand important points. You discover bills that you need to pay every month, amounts that you need to receive, where you can reduce some expenses and even areas for improvement, such as sectors that are profitable and perhaps deserve investment.

But if I ask you now what is happening with your business, what is the most expensive area or what is the minimum amount you need to run, can you tell me?

Or, can you tell me how much it costs to make your product or provide your service? What is your profit margin on this?

If the answer to any of these questions is no, take a deep breath and stay calm. There are three things you need to do about this, and I’ll quickly explain each one.

1. Find out the minimum amount your company needs to run, its fixed costs ;
2. Understand the value at which you sell your product, its sales price ;
3. Keep a record of all financial transactions and your cash flow .

1. Fixed Costs and what is the minimum value for your company to exist?

Fixed costs are those that your company has simply because it exists! They do not depend on the quantity of products or services sold.

So when thinking about fixed costs you need to consider things like taxes, employee salaries, electricity, internet, water, and rent for the commercial space.

In other words: expenses that the company has every month, just for opening its doors.

These costs are the main values ​​you need to keep in mind when calculating the price of your product or service . The thing is, when selling what you produce, you need to make sure that your company’s bills are taken into account, as these are the bills you will pay anyway, whether you sell a lot or a little.

2. The Price My Client Will Pay

The amount you charge your customers to have your product or use your service is the Selling Price . It needs to give you enough return to keep the company running with positive cash flow , that is: it needs to be enough to pay fixed costs and still have some money left over in cash .

There is no secret to reaching your ideal selling price, right or wrong. The main thing is to consider that it is the main gateway to the values ​​of your business, so it needs to be calculated calmly and carefully.

There are several methods that range from considering only the competition, considering profits, the contribution margin or even the Markup.

Sounds complicated? Well, let me explain the basic structure that sales price formation should follow, because there’s no point in selling something to take money out of your pocket, right?

First of all, you should consider:

• Fixed costs , as I explained above, are the expenses your company has every month regardless of sales volume;
• Variable costs , which are the expenses that your company may or may not have each month, depending on sales and other determinants such as, for example, the cost of producing your product or providing your service, as it varies according to quantity;
• And the expected profit , which is what will be “left over” after you pay all the bills – and it can vary depending on the market your business is part of and how much you consider ideal.

What you need to keep in mind is: the amount your customer pays needs to cover your costs, expenses and make a profit , but don’t forget to take into account the price of your niche to make your product or service competitive with the market.

3. My Cash Flows

Do you know when you are closing the month at home and you write down how much you spent on bills, how much you received in salary or how much you have in your checking account?

Or what about when you want something more expensive and then plan how much you will reduce your spending each month to be able to buy it without any hassle?

You are organizing a cash flow .

And if this organization is already important for you and your home, can you imagine the impact it has on the financial health of your business?

More than that: if we think that in a company there are entries and exits, bills being paid and several other movements every day, have you ever thought that it is very easy to get lost in these records?

Well, this task is not as laborious as it seems, but it does require a little bit of daily dedication. After all, if you don’t have a record of everything you’ve received or even what you have to pay, a series of confusions can jeopardize your business’s money.

For example, you may be late with a payment and have to pay interest or even not receive payment from a customer without realizing it.

With this in mind, you can see that cash flow is the main tool for your financial management! And organizing it properly can help you both make a profit and avoid losing money without realizing it, because by writing everything down correctly you can predict future situations involving your company’s money.

To start organizing your cash flow, you just need to choose a period and start writing down all the transactions . With these first steps in mind, you will be able to understand the current situation of your business, whether it is a large company or even a small business.

By writing everything down correctly, your cash flow will show you the situation of your company within this period, both now and in the future. In other words, it will project what the financial situation of your company will be like in the coming months of the chosen period.

This way, you can think about what actions you need to take to ensure a healthier and more stable future for your company.