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E-Myth – “Why most small businesses don’t work & what to do about it”

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Virtual CFO | Increasing Cash Flow In Business

Why business owners often have a poor understanding of why their business is making money, but they are running out of cash says virtual CFO, is because of its owners often are not trained properly about several business financing situations. Helping business owners learn business finance literacy, this can increase their chances of success in business and avoid one of the top three reasons why businesses close their doors in Canada, which is running out of cash. By becoming more financially literate, business owners again only make better financial decisions in their business, but they can also use that knowledge to increase their business and become successful.

One of the ways that business owner can help increase cash flow in the business is by creating a longer cut of and processing period for their payroll. Virtual CFO says many business owners believe that there should be a very short period of time between when their payroll, is, and when payday is. Is because business owners are often stuck in the employee mindset, and they want to get their money to their employees as fast as they can. This creates a situation where the business owner may have to draw on their own cash in order to pay payroll. If the business owner creates a situation where they have a longer time between cut off payroll is, business owners again take the time to collect more money from the glance in order to use that to pay their payroll.

Another way that business owners can help increase the cash will in their business is when there considering their financing options. Business owners believe that the most important factor to a great loan is a low interest rate, says virtual CF and while a low interest rate is important, business owners should also look at amortization periods in their financing options. The longer the business owner has to pay off that loan, the lower their payments are going to be, and the easier it is going to be to be. The shorter the period of time, the higher the payments will be and the more likely a business owner will run into a cash flow problem will try to pay that loan. By looking at the amortization period that needs a slightly higher interest rate, can help business owners can avoid the cash flow problem while paying the loan back.

Business owners can avoid the cash flow problems in their business is by understanding how a sudden increase in revenue in place strain on cash flow in the business virtual CFO says many business owners donít understand that having a sudden influx in revenue can be hard on their business. The reason for this is when business revenue goes up, there expenses are also going to be going up, and business owners will get paid on that increased revenue until later, however those expenses need to be paid right away. So this can contribute to a cash flow crunch business. I understanding this, and we are, business owners can make decisions when they see that the revenue is increasing in order to avoid that cash crunch.

A sobering business statistic says that 50% of all businesses close the doors to their business within five years and that 29% of those failed businesses will say that running out of money was the reason why he had to close their doors is virtual CF. Helping businesses understand basic financing in business can help them make better decisions is business owners, and avoid a lot of the reasons why these business owners fail in business, which is running out of money. By understanding these common problems, business owners can be prepared to face challenges head-on and avoid the cost business owners to run out of money.

Business owners need to understand when they use cash to buy assets, how is their profit and loss statement affected says virtual CFO. When business owners use cash to purchase assets, that money is no longer in their bank account, but it also does not show up on their profit and loss statement the same way. So in businesses make asset purchases with the cash in the business, you need to understand that there profit and loss statement will be differently, they should be prepared for that for that.

Similarly, business owners also need to understand what happens to their cash balance when they pay off payables and credit cards says virtual CFO. As soon as business owners collect money in their business, they use that money towards their bills, so their bank Shows as having no money in the bank account. However, those bills hit the income statement earlier, when the invoice happened. This can create a bit of a situation where it shows a bit of a lag between when the invoices are received and put on the income statement, and when the money is paid towards that bill. Business owners need to understand that difference in order to realize why they have no money in the bank.

Business owners also need to understand how shareholder loans affect cash flow, in order to understand the cash flow in their business says virtual CF. business owners need to understand that dividends will never show up on an income statement. Therefore the business owner needs to be very aware of how much profit the business needs to make in order for them to be able to take that dividend out of the business. And of the business owner is not aware of that, they may end up taking more dividends than the business is profiting. When that happens, it creates a cash flow problem within the business. Virtual CFO recommends business owners should look at their profit and loss statement, bank account as well as their income statement periodically to avoid this from happening. Helping business owners understand how cash flow is affected in their business, they can be more prepared to eliminate cash flow problems when they arise.