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In today's globalized world, the emergence of new companies has become increasingly common, as the technological tools that have achieved great growth in recent years, such as the various applications that can be used on the internet, have led to many entrepreneurs to start business. that can separate them from the professional limitations that can often be found in an office.
Equivalent, large companies also continue to grow steadily, Therefore, today it is possible to meet a wide variety of businesses and companies of all kinds.
In spite of everything, these were not made overnight and in order for them to remain stable and growing for many years, they had to have adequate financial control from the beginning, since no business manages to impose itself in today's competitive business sector. . in the day, if not through a optimal capitalization and liquidity that enables them to face a drastic decrease in income or some sudden expense that can be fatal for companies and businesses that are not financially protected.
What is cash flow all about?
To fix the problems related to liquidity and profitability, which is an obstacle that new companies can find, or that can even affect large companies already established, we find the cash flow issue, also known as cash flow or treasury, a disruptive method that can be understood as an indicator that offers us information about the financial status of a small company or even a large company, in other words, it is about tracking the inflows and outflows of cash or cash in a determined period, a tool that allows us to be much more aware of the company's expenses and income. Ultimately, it is about finding the balance between our needs and our economic opportunities to solve them.
What kind of applications can cash flow studies have within a company?
Cash flows can have different functionalities to ensure the financial stability of a company. Some of its main uses can be applied to the following cases:
To solve a company's liquidity problems:
A menudo se suele pensar que para garantizar el correcto funcionamiento de una compañía solo hace falta que be rentable, es por ello que muchos pequeños emprendedores pierden la posibilidad de hacer crecer sus negocios, careciendo de algunos de los argumentos básicos que siempre deben tener en cuenta. . cuenta cuando realizan los gastos y gastos que pueden llevar a bad cash flow. That is why this cash flow option enables you to anticipate cash balances, so that you never have cash problems, a situation that should never be present for any company even when it is profitable.
Cash flow enables you to analyze the viability of investment projects:
To know the benefits of venture to invest in a certain economic project, the cash flow makes it possible to make use of the cash flows that are the basis for calculating the net present value and also the internal rate of return that it has. With these data you will be able to know the pros and cons of any investment project you have in mind.
Measure profitability and growth:
Cash flow also makes it possible to measure the profitability and growth that a business can have in a certain period of time, especially in those cases in which accounting standards do not satisfactorily represent the economic reality of said business.
What items does the cash flow consist of?
Cash flow is an indicator that is usually made up of the following items: Profit + amortization + provisions.
Estos tres ítems son necesarios para poder realizar el análisis de flujo de caja, de tal forma que, según este indicador, tanto las amortizaciones como las provisiones son costos que se deben sumar a los beneficios según un período determinado, y no necesariamente estos. costos. suponen una salida de dinero, dicho de otra forma, las amortizaciones a pesar de ser un costo, no disponen por qué significar una salida de efectivo, pues contablemente suponen una disminución del resultado del año, pero esto no conlleva que sean un desembolso como tal. Lo importante es que el efectivo, dicho de otra forma, la tesorería se mantenga disponible. El target de esta operación es que a través de el flujo de caja se pueda conocer cuáles son las disponibilidades financieras que tiene un determinado negocio, dicho de otra forma, la cantidad de efectivo que una compañía puede generar durante un determinado período de tiempo.
What is the importance of applying cash flow in today's businesses?
Cash flow is of the utmost importance today, since it is a fundamental tool with which we can keep track of the amount of money a company produces. This data is essential to be able to know our financial health and thus be able to lead the evolution that our business or company will have over time. Likewise, making adequate use of cash flow will also allow us to generate better agreements with other companies and suppliers, because by knowing our cash flow we will know how to comply with our payments or what commitments can be determined according to the financial solvency of the company . business.
What types of cash flow are there?
By its origin, there different classifications of cash flow to which we can resort to fix a specific obstacle of liquidity or solvency of a business.
- Operating cash flow: It is the cash received or delivered as a result of those basic economic activities that the company has. Finally, we refer to the amount of money raised thanks to the basic economic activities of the company.
- Investment cash flow: It is the cash collected or spent after having considered the capital investment expenses that may benefit the business in a given future. The important thing about this type of cash flow is that all those investments that can benefit later are taken into account, such as the purchase of new machinery for a factory, by way of example, or the fact of engaging in new investments or acquirers that perform their respective benefits in the future.
- Financing cash flow: This is the cash collected or spent as a result of different financial activities that can range from payments or receipt of loans to the issuance or purchase of shares. In any case, there are a large number of financial operations through which money can be received or paid, so this type of cash flow is ideal for monitoring the liquidity managed and received in the different financial movements of a company.
Are there limitations to cash flow calculations?
The most used and well-known form of calculate cash flow It is known as accounting cash flow. This formula is one of the most used, especially in the different exercises that are for comparative purposes, however, it does have a very important limitation, which is given by the so-called accrual rule.
Simply, this consists of accessing the earnings as treasury to accounting profits, which is far from coinciding with reality. The reason is that when invoices are made for a sale, the benefits for said transaction are recorded, however this does not mean that we have truly collected the value of that sale. In other words, this problem arises because today many companies tend to have deals and agreements with suppliers or vice versa.
These deals or agreements consist, by way of example, of providing credits to make a successful sale, which means that the purchase is made but the money from that sale is not received immediately. As an example, if a supplier manages to commercialize a series of products or posts with a certain value to a company, the normal thing is that the purchase is made in cash, but today it happens, very frequently, that the sale of the products is made on credit or that is conditioned according to the use or benefit that the company obtains from those products.
Therefore, Credit sales They usually appear in the invoices of a business, but in general an agreement is reached with the buyer so that they pay us later, so the value of these sales is not in liquid cash but represents a profit that is entered in the invoice even though the money will be received in a certain future.
This is what is known as deferred sale and when it is presented, it is normal that part of the sales of a year, together with its benefits, remain pending collection until next year, of course, in case everything goes well, Because If things go wrong for the person who buys the posts from us under this concept, then those sales will not be charged, since this is a benefit that is offered as long as we have a kind of agreement in which we will be making purchases on time in time. The problem is that we have already recorded those sales on the invoices when we are still not sure that we will receive the money from them.
The solution to these types of problems is that we equip ourselves with various instruments to measure the cash or liquidity levels of a business, whether current or planned, in order to better manage them and better calculate costs and benefits. of the financial movements that we carry out.
Conclusions
Definitely, cash flow or cash flow, It is an excellent resource for the accounting exercises that we can do to make the most of the profits and profits of our business or company. By making correct use of this method, we will definitely be one step ahead in the evolution of our business, and with your due effort and dedication, we will be able to make it grow to become a quite fruitful company, which is not only profitable but also has a great liquidity. to face any economic unforeseen.
